Stocks, Bonds and Funds in Plain English

The story: Ana reads the fund menu

Ana looks at a workplace retirement plan’s fund menu while Marcus explains stocks, bonds and funds with simple pictures.

1. Narrator: Ana just joined the retirement plan at work. The fund menu is a wall of names.
2. Ana: Stock fund, bond fund, money market… What would I actually own?
3. Marcus: A stock is a small piece of a company. If the company does well, the piece can be worth more. It can also fall.
4. Marcus: A bond is a loan to a company or a government. It pays interest and is usually steadier.
5. Narrator: A fund is a basket that holds many stocks, bonds or both. One share of the fund owns a slice of all of them.
6. Ana: So a fund spreads my money out, and one company can’t sink it.
7. Narrator: Stocks own, bonds lend, funds bundle.

What you’ll learn

1. Stocks: owning a piece

   A share of stock is a small piece of ownership in a company. Its price rises and falls with how the company does and what investors expect. Some companies pay part of their profits to owners as a dividend.

2. Bonds: lending

   A bond is a loan you make to a company or a government. It pays interest and returns the amount you lent at the end. Bonds usually swing less than stocks, and usually grow less over long periods.

3. Funds: baskets

   A fund pools money from many people to buy many investments at once. A mutual fund is priced once a day. An ETF, or exchange-traded fund, trades all day like a stock. Owning many investments in one fund spreads out risk.

4. Cash has a job too

   Cash in savings and money-market funds is built to hold steady and pays a little interest. It’s for money needed soon, like an emergency fund. Each type has a job: stocks for growth, bonds for steadiness, cash for ready money.

Key words

stock

a small piece of ownership in a company

Also called: share

bond

a loan to a company or government that pays interest

fund

a basket of many investments bought together

Also called: mutual fund or ETF

dividend

part of a company’s profits paid to its owners

Common questions

Is a money-market fund the same as a money market account?

No. A money-market account is a bank account. A money-market fund is an investment built to hold steady. Both pay a little interest.

Do I need a lot of money to buy a fund?

Often not. Many funds and ETFs can be bought in small amounts, and workplace plans invest from each paycheck.

Remember this

Stocks own, bonds lend, funds bundle.

Try it: Find one stock fund and one bond fund

1. Open a 401(k) fund list, or any fund’s public fact sheet (outside the app).
2. Find one fund that holds mostly stocks.
3. Find one fund that holds mostly bonds.

The whole mission; no account or app needed.

Live facts

Numbers that change over time, with when they were last checked and where they come from.

• Stocks, bonds and funds explained

  Source: Investor.gov (SEC)(opens in a new tab)