Lesson 4 - Stocks, bonds, and mutual funds

LAST REVIEWED Sep 25 2023
3 MIN READEditorial Policy
By Claudia Newman

Get started with investing

Watch our video to understand the difference between stocks, bonds, and mutual funds.

What is investing?

Investing is the process of purchasing securities (e.g., stocks, bonds, mutual funds, etc.) with the goal of driving growth, income, or capital preservation.

People may choose to invest their money because they want to improve their life or the lives of their loved ones.

Is investing for people like me?

61% of households in the U.S. own stocks, the majority through a 401(k), according to Gallup.

Understand your options

When it comes to your 401(k) contributions, you can tailor your investment strategy to meet your goals. Here are some of your options:

  • Stocks are like tiny pieces of companies. When you buy stocks, you own part of that company.

  • Bonds are like loans you give to companies. In return, they pay you back with interest.

  • Mutual funds are like baskets filled with different stocks and/or bonds. When you invest in a mutual fund, you're spreading across multiple investments.

Refer to our investing terms glossary.

Put your money to work

Investing is a key long-term strategy that aims to put your money to work for your future. But if you leave all your savings in cash, it could cost you.

The growth rate of the money you put in a savings account may not even keep pace with inflation, whereas the growth rate of the money you put in the stock market could be much higher, averaging around 10%, based on historical returns.1

Claudia Newman

Article By

Claudia Newman

Claudia Newman manages the Retirement Education team that helps onboard employees to their Human Interest plan and explains the benefits of a 401(k) plan by offering live training. She has been working in the 401(k) and retirement plan industry in several capacities, including relationship management, sales, and back-office support since 2010.

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Notes

1

NYU Stern School of Business data and Human Interest calculations using Historical Returns on Stocks, Bonds and Bills: 1928-2022. Stocks represented by the Standard and Poor's 500 Index, often referred to as the S&P 500, which is a commonly used stock market index. It tracks the performance of stocks of 500 large companies listed on stock exchanges in the United States. Bonds are represented by the United States Treasury Bond, which are government debt securities issued by the U.S. Federal government that are sold in 20- or 30-year terms. Bills are represented by 3-month Treasury Bills, which are short-term debt obligations issued by the United States Department of the Treasury. Investing is subject to risk, including risk of loss. Past performance is not indicative of future results.  Performance data shown is as of 12/31/2022 S&P data © 2023 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

Disclosures

The (k)ickstart™ program is administered and offered by the recordkeeper, Human Interest Inc. ("HII"). HII's subsidiary and registered investment adviser, Human Interest Advisors ("HIA"), receives a fee based on assets under management. As such, HIA will earn more in asset-based fees if a plan participant increases their contribution in connection with the program.