How would you explain mutual funds to someone unfamiliar with the concept?

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How to Answer
1st Experienced Example
2nd Experienced Example

Fidelity strives to create straightforward investment products and tools for its clients. You'll see highlighted on Fidelity's website that a central goal for the company is to 'make the complex, simpler.' As a wealth manager or advisor, an important part of your job will be explaining financial products and strategies to your clients in a way that is accessible and straightforward. The point of the question is for the interviewer to determine how well you can explain products like mutual funds to the average person who's not a financial expert. Before they consider you as a representative of their company they'll need to ensure you can effectively communicate this to someone without a financial background.

Try to align your language with theirs. "Mutual funds are a practical, cost-efficient way to build a diversified portfolio of stocks, bonds, or short-term investments. Our extensive resources allow Fidelity's fund managers to look deeply across different regions and sectors to find investment opportunities that others may miss."

"I understand that the world of wealth management can be overwhelming and complicated, which is why it's imperative that I can explain concepts and products very simply. All clients want to know is if the product is right for them, why it's right, and what kind of results they can expect. For that reason, I would explain mutual funds as a professionally managed money pool. In other words, various investors pool their money together to buy stocks, bonds, or other assets. For the past century, the market return has been about 10%, meaning that these investors, on average, will get a 10% annual return by investing in these assets. I highly recommend mutual funds (as well as index funds) to my clients as an easy way to diversify their portfolio without taking too much risk."

"Mutual funds are a basic financial concept, so every one of my clients must have a solid idea of how they work. I would tell clients that when they buy a mutual fund, they pool their money with many other investors. This pooled money lets them invest more widely for a lower cost. A professional manager decides where to invest this money pool. Mutual funds are flexible, allowing a client to buy or sell their funds at any time."