Final answer:
Individual savers can reduce transaction costs and risk through diversification of their portfolio using Financial Institutions, which facilitate investments in a broad range of assets via products like mutual funds.
Step-by-step explanation:
Individual savers can use Financial Institutions (FIs) to reduce the transaction costs of investing in financial assets notably through the diversification of their portfolio. Diversification is a standard recommendation from financial investors, which involves buying stocks or bonds from multiple companies rather than concentrating all funds in the securities of a single company.
This strategy helps in managing risk because while some companies may perform poorly, others may do well, thus mitigating the risk of substantial financial loss.
Financial institutions facilitate diversification by offering investment products like mutual funds, which pool money from many investors to purchase a broad portfolio of assets, thereby spreading the risk across a variety of investments. By lowering the individual costs of researching and transaction fees associated with personal investing, financial institutions make it more cost-effective for savers to invest their money.
By choosing to diversify with the help of financial institutions, savers can thus benefit from lowered transaction costs as well as reduced risk associated with investing in financial assets.