Multiple choice

A small investor can build a diversified portfolio by

  1. Buying one share each of all listed companies

  2. Investing in a mutual fund

  3. Borrowing enough money to buy shares of well-managed companies

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Mutual funds pool money from many investors to purchase a diversified portfolio of securities, allowing small investors to achieve instant diversification with minimal capital. Option A is impractical due to the sheer number of listed companies and high transaction costs. Option C involves borrowing (leverage), which amplifies risk and is not a prudent strategy for small investors. Option B is the correct answer as mutual funds are specifically designed to provide diversified portfolios to small investors.

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