Which financial instrument allows investors to pool their money to buy stocks and bonds?

The correct answer is mutual fund. A mutual fund is a financial instrument that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. This allows individual investors to gain access to a broad range of investment opportunities, which they might not be able to invest in on their own due to price constraints or lack of expertise. By pooling resources, mutual funds can offer diversification, professional management, and economies of scale, making them an appealing option for many investors seeking to grow their wealth while spreading risk.

Exchange-traded funds (ETFs) also allow for the pooling of investor funds to invest in a variety of assets, but they are traded on an exchange like stocks, which provides different liquidity features and trading mechanisms. Real estate investment trusts (REITs) primarily focus on real estate investments and are structured to provide income through real estate ownership, but they do not invest in the wide range of stocks and bonds like mutual funds. Commodities funds invest specifically in commodities rather than a diversified mix of stock and bond investments.

Each of these other options serves distinct investment objectives and structures, but in the context of pooling money specifically to acquire stocks and bonds, mutual funds are the quintessential choice.