Stocks, bonds, and mutual funds are three of the most common building blocks of an investment portfolio. Here is what each one is.
Stocks — ownership.
- A stock is a small share of ownership in a company.
- Its value rises and falls with the company and the market.
- You may earn money through price growth and, sometimes, dividends.
- Generally higher potential return, with higher risk and more ups and downs.
Bonds — lending.
- A bond is essentially a loan you make to a company or government.
- In return, the issuer pays you interest and repays the bond at the end of its term.
- Generally lower risk and lower return than stocks, and often used to add stability.
Mutual funds — a basket.
- A mutual fund pools money from many investors to buy a wide mix of stocks and/or bonds.
- It is professionally managed and gives you instant diversification in a single investment.
- Exchange-traded funds (ETFs) are similar but trade like individual stocks during the day.
The big picture: stocks offer growth, bonds offer stability, and funds offer a simple way to own many of both at once. Most portfolios use a mix suited to the investor's goals and time horizon.
Investments are not FDIC insured, are not bank guaranteed, and may lose value. RMO Investments, Inc. is a separate entity from RMO Bank. This article is general information, not tax or investment advice.