The difference between stocks and bonds

Mutual funds invest in multiple different companies with money from many investors, while an individual stock represents ownership in a single company and is bought by individual investors.

Investors can buy three main types of bonds: government, corporate, and municipal

Each type has variations of its bond offerings with different interest rates, loan lengths, maturity dates, and terms. Each type also carries its own risks and rewards.

Investing in bonds comes with a few risks

Think: changes in interest rates that impact the bond’s value, or a bond issuer completely defaulting on a loan. There are steps investors can take to lower their initial and future risk when investing in the bond market, such as checking a company's bond rating before investing.

A bond ETF lets someone invest in multiple bonds through one single fund

There are risks, there are also major perks to buying a bond ETF, like the ability to purchase bonds on the stock market.

There are three main ways to start investing in the bond market

Invest in the boind market through a brokerage, mutual fund or ETF, or the US government. Each has different steps and terms to follow, from starting rates to opening specific accounts. Some bonds are relatively easy to purchase, but the process differs depending on the type of bond you want.

What's the difference between a stock and a share?

While the words "stock" and "share" are often used interchangeably in casual conversation, they have different meanings. For instance, "stock" is more general, whereas "share" is more precise.

When compared to stocks and bonds, alternative investments are often less regulated

Alternative investments are also often less liquid than traditional investments; they carry unique risk, return, and tax considerations.

The 60/40 method says to allocate 60% of your portfolio to stocks, and 40% to bonds

The 60/40 method used to be the golden rule when planning for retirement, as stocks are more lucrative and bonds are more reliable. However, it isn’t necessarily the go-to recommendation anymore.

People often invest in alternative investments to diversify their portfolios

Because alternatives often have little correlation with traditional investments like stocks and bonds, adding them to a traditional portfolio can reduce its overall risk exposure.

Investing in mutual funds can give you access to a wide range of securities, such as stocks and bonds, with just a single investment.

Mutual funds are categorized as stock, bond, money market, and target-date funds.

'The stock market' can be loosely defined as a set of exchanges and other places where shares of public companies are bought and sold.

ETFs and mutual funds both pool money into a basket of investments—but the key difference between them is that mutual funds trade just once per day after the market closes, while ETFs trade like stocks throughout the day at fluctuating prices.

Stock options give investors the right to buy or sell a stock at an agreed-upon price and date

There are two types of options: calls, which are bets that a stock will rise (or not rise past a certain point), and puts, bets that a stock will fall (or not fall past a specific level). While stock options give investors the right to do these trades, they do not obligate buyers to follow through with them—sellers, on the other hand, must perform the option if it is exercised

Bond yields are the returns investors earn from a bond's interest—and they're a key economic barometer.

Companies sometimes issue corporate bonds to raise capital

These bonds offer investors regular interest payments in addition to the return of the principal amount at maturity. They allow companies to raise capital without losing ownership.

Contrary to popular belief, random investments can outperform managed funds.

Investors collectively owned $28T in US Treasury securities as of 2025.

The bond market is where bonds and other debt securities are traded

Bonds are fixed-income investments allowing individuals to lend a specific amount of money to a large entity, like a government or corporation, for a set amount of time in return for interest paid out over the life of the loan. The bond market is widely considered a key economic barometer.

The term 'securities' refers to different types of investments, such as stocks or bonds.

Read about the pros and cons of mutual funds.

Value investing seeks to buy stocks trading below their intrinsic worth

Value investing specifically focuses on fundamentals like earnings, assets, and price-to-earnings ratios. In contrast, growth investing targets companies with rapid future potential, often trading at higher valuations. Both strategies offer unique paths to returns.

Active investors try to 'beat' the stock market's performance

There are two primary types of investment strategies that professional investors use: active investing and passive investing. While active investors try to "beat" the stock market's performance, passive investors have a bit more faith in the system.

Shorting is a high-risk and expensive investment strategy that hedge funds specialize in

Most investors buy stocks with the expectation that those stocks will be worth more tomorrow than they are today. Short selling, known as “shorting,” a stock is the opposite: The investor is betting the stock will drop in value.

Retail investors are individuals who trade stock for themselves

Institutional investors, on the other hand, are investing for someone else. There are big differences between the two, one being that institutional investors can be granted certain special treatment (like being able to purchase IPOs right away).

Shares are parts of a stock that represent ownership of a company

Shares are traded on the stock market. Once you buy a single share of a company, you are considered a shareholder of that company and may have certain rights as a partial owner, such as voting on business decisions.

ETFs and mutual funds are both taxed on capital gains and on dividends.

Mutual fund investors typically must pay a variety of different types of taxes associated with their investment, unless the funds are within tax-advantaged accounts like a 401(k) or IRA.

Explore a step-by-step guide for getting started as a retail investor

Instead of purchasing individual stocks and bonds, new investors may want to start in funds that track an index—like the S&P 500—or that hold a group of themed stocks.

How mutual funds work

Mutual funds function similarly to other types of investments. If you want to invest, you go through a brokerage firm. However, they have a few key differentiators. Most are actively managed by a broker instead of passively earning you returns. Plus, they can carry some hefty fees.

Retail investors are average joes, while institutional investors often move billions of dollars a day

Retail investors often trade 100 shares at a time, while institutional investors trade 10,000 or more. The biggest difference is that, unlike retail investors, institutional investors are professionals who are trading someone else’s money.

If the US government paid off its debt, it could disrupt the entire bond market, as Treasury bonds are among the most common bonds for investors and the majority of the national debt is in bonds.

Pension plans investing over 60% in stocks had the highest real returns in 2024

In order to ensure that retirees received all the retirement funds a company or other institution may have promised them, pensions were often limited to investing in run-of-the-mill assets like government securities, investment-grade bonds, and blue-chip stocks. But as market conditions have evolved, pensions are increasingly being invested in a wider range of assets, including alternative investments.

How to balance paying down debt vs. investing

When someone has extra money in their pocket, they're quickly faced with a decision: Is it a better idea to use that money to pay down debt, or invest it? While the answer depends on each individual's financial situation, this video explains which solution works best depending on the circumstances. Watch it here.

Mutual funds pool money to create larger investment opportunities with higher returns for anyone who initially invests in the fund.

ETFs are rising in popularity

While less than half of retail investors hold ETFs in their portfolio, this figure is up dramatically in recent years, and experts forecast continued adoption as more options hit the market and total ETF assets under management continue to grow.

Visualize the differences between the New York Stock Exchange and the Nasdaq.

Are I-Bonds a good investment?

I-Bonds are savings bonds issued by the US government that can help protect savings from inflation. While that sounds positive, I-Bonds have a few disadvantages, too—for instance, these bonds have to be held for at least a year before you can cash out.

Pension funds' allocations to risky, alternative investments increased by 25% between 2001 and 2021

The portion of pension funds' risky investments, including alternative investments such as private equity, increased from 14% in 2001 to 39% in 2021. Analysts say private equity investments have delivered higher returns than traditional assets like stocks and bonds. Increased investment in private equity has also given pensions a way to recover from the 2008 financial crisis without necessarily investing more money.

Alternative investments can include everything from cryptocurrency to fine art

The financial assets typically fall outside the scope of traditional investments like stocks and bonds, and they’re often intended to diversify investor portfolios.

Retail investors are not professionals—they invest their own money

For retail investors, the stakes may seem higher and more personal. Critics say that this dynamic means that retail investors are more susceptible to behavioral biases that could lead them to make poor decisions when it comes to buying and selling assets. For instance, fear of missing out could cause a retail investor to buy a stock that is popular but not a financially worthy investment.

Companies often use different share classes, like Class A or Class B, to structure ownership

Share classes refer to specific types of company stock that are distinguished by the rights they grant, such as voting power and dividend access.

About 88% of all homebuyers feel their home is a good investment.

Capital assets include investments from stocks to fine jewelry

Capital assets can be classified as property owned and used for personal or investment reasons. If a capital asset grows in value and the holder decides to sell it, their “capital gains” would be roughly the difference between the original purchase price and the amount of money they sold the asset for.

The stock market, explained in 3 minutes

The stock market consists of a set of exchanges and other venues where shares of public companies are bought and sold. The Nasdaq and the New York Stock Exchange are two of the most well-known exchanges in the US, while major exchanges also operate around the world, including in Tokyo, Shanghai, London, and São Paulo.

Learn how fine jewelry investing works with this beginner's guide.

Why does the stock market matter?

Open any newspaper, turn on your local TV news station, or listen to a daily business radio segment, and you’re bound to hear about how the stock market is performing. Netflix created a 17-minute (free) explainer that dives deep into the nitty-gritty of how we got here.

A 'position' in financial markets refers to the amount of a security or asset that an investor owns or sells short

A "long" position gains from an increase in a security's price, whereas a "short" position profits from a price drop. This article includes a detailed explanation of the term "position" as it relates to investing and financial markets.

The pros of exchange-traded funds include ease of access through brokerage apps and retirement savings accounts

One unexpected perk is that ETFs are typically associated with lower capital gains tax requirements. Read this list to learn more about the benefits of investing in ETFs.

The Dow Jones Industrial Average vs. the S&P 500: Which one is a better representation of the economy?

The Dow and S&P 500 are both indexes meant to provide a broad representation of the economy. The Dow has 30 companies and is weighted by share price, while the S&P 500 has 500 different companies weighted by market capitalization. Since the indexes are so different, investors don't always agree on which index is a better representation of the economy—though the two move in the same direction more than 90% of the time.