What’s the Difference Between Stocks, Bonds and Cash?
Mutual funds are made up of mostly stocks, bonds, and/or cash and cash equivalents. A stock is basically a tiny piece of ownership in a company. When the company does well, the stock does well, and the stock’s value will usually rise. On the other hand, when a company’s performance falters, its stock usually does too, and the value of the stock may drop. Stocks are also known as “equities” or “shares,” and are generally a riskier investment than bonds. A bond is a fixed-income investment in which an investor loans money to a company or government entity. It works like this: an investor (someone like you) buys the bond at a certain price (the principal) from an issuing company or government (someone like the U.S. Government). In exchange, the issuer agrees to pay interest and return the principal back to the bond holder, after a certain amount of time. Cash and cash equivalents are either cash or assets that can be converted to cash very quickly, usually in three months or less. Bank ac
