Question

Why is investing in mutual fund less risky than investing in a particular company's stock

Answer 1

A mutual fund is essentially a company that invests in a lot of stocks and/or bonds. They are more diversified compared to a single corporation. If a company does poorly, then the mutual fund might divest from the company and focus their attention elsewhere. Similarly, if an industry is underperforming, then the mutual fund would turn somewhere else.

Answer 2

A mutual fund is less risky because it is comprised of dozens of individual companies as opposed to only one company. By investing in dozens of other companies, you diversify your portfolio.