Which financial instrument allows investors to pool their money in a diversified portfolio?

Mutual funds are a financial instrument specifically designed to allow investors to pool their money together in order to create a diversified portfolio. When individuals invest in a mutual fund, their contributions are combined with those of other investors, enabling the fund manager to invest in a wide array of assets, such as stocks, bonds, and other securities. This diversification helps spread risk, as the performance of the fund does not rely on a single investment's success, but rather on the overall performance of the diverse range of assets held within the fund.

The key benefit of mutual funds lies in their professional management and the ability to achieve instant diversification without the individual investor needing to buy a variety of individual securities. This dramatically reduces the burden on investors to research and track each investment on their own, making mutual funds an accessible option for individuals who want to invest in a diversified manner without having extensive knowledge or capital to individually acquire a substantial number of different assets.