The minimum investment for mutual funds is often $3,000. To create a diversified portfolio of stocks, an investor would have to allocate $60,000, Lemon says. By pooling a lot of stocks in a stock fund or bonds in a bond fund, mutual funds reduce the risk of investing. That reduces risk because, if one company in the fund has a poor manager, a losing strategy, or even just bad luck, its loss is balanced by other businesses that perform well. This lowers the risk, thanks to diversification. When you invest in a stock, you are purchasing a share of one company. A mutual fund offers more diversification by bundling many company stocks into one investment.