A stock is a share of ownership in a company. Its value rises and falls with the company, and it may pay dividends.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
Bonds
A bond is a loan to a company or government, repaid with interest. It is steadier than a stock and usually returns less.
Funds
A fund holds many stocks or bonds at once. One purchase buys a slice of hundreds of companies.
Diversification
Spreading money across many holdings means no single failure is fatal. It is the one genuinely free improvement available.
Risk and return
Higher expected returns come only with larger swings. Anything promising high return with no risk is misrepresenting itself.
Fees compound too
A 1% annual fee sounds trivial and consumes a large share of a lifetime of returns, because it compounds exactly as growth does.
What a share is
A share represents partial ownership of a company. Its value moves with the company's prospects and with the market generally, and it may pay dividends. Ownership carries the possibility of loss as well as gain.
What a bond is
A bond is a loan to a government or company that pays interest and returns the principal at maturity. Returns are generally lower and more predictable than shares, and the issuer can still default.
Funds hold many assets at once
A fund pools money to buy a broad set of holdings, so a single purchase spreads exposure across many companies. That spreading is what reduces the impact of any one holding performing badly.
Risk and expected return move together
Higher expected returns come with greater variability, including the possibility of loss. Anything promising high returns with no risk is misrepresenting itself, and that is a reliable test.
Step 2: Try It Yourself
Tap and try it out.
Savings
Bonds
Stocks
Stocks has the most. It has 6 more than Savings.
Step 3: Watch an Example
One step at a time.
Watch Sana Weigh a Fee
Two funds are identical except one charges 1% a year and the other 0.05%.
- Step 1
The difference is 0.95% a year, which sounds negligible.
Step 4: Your Turn
Practice makes it stick.
The Fee
Problem 1 of 2
A 1% annual fee on a $200000 balance. Fee for the year, in dollars?
dollars
The Loan
Problem 2 of 2
Which is a loan to a company rather than ownership of it? 1 stock, 2 bond.
What Are You Buying?
1 of 8
Which represents ownership? 1 stock, 2 bond.
2 of 8
A 0.05% fee on $200000. Fee in dollars?
3 of 8
A 1% fee on $50000. Fee in dollars?
4 of 8
Which usually returns more over decades? 1 bonds, 2 stocks.
5 of 8
Which usually swings less year to year? 1 bonds, 2 stocks.
6 of 8
Can a legitimate investment offer high return with no risk? 1 yes, 0 no.
7 of 8
Match each investment with what it is.
Tap a card on the left to start.
8 of 8
A 0.5% fee on $80000. Fee in dollars?
Step 5: Quick Check
Show what you know.
Question 1 of 2
A 1% annual fee on $100000. Fee in dollars?
Question 2 of 2
What does diversification do?
What You Learned
- A stock is ownership; a bond is a loan; a fund holds many of both.
- Higher expected return comes only with larger swings.
- Fees compound against you exactly as returns compound for you.