How diversification, cost and risk differ between owning a broad fund and owning shares of single companies.
An index fund holds many securities in order to track a market index, spreading money across many companies. Buying individual stocks means owning shares of specific companies.
Diversification can reduce the impact of any single company performing poorly, but it cannot remove market risk. Individual stocks can behave very differently from the market in either direction. Fees, taxes and your time horizon also matter.
| Term | Meaning |
|---|---|
| Index fund | A fund designed to track a market index |
| Diversification | Spreading money across many investments |
| Expense ratio | Annual fund cost as a percentage of assets |
No. They can lose value when markets fall.
No. This article is educational. Consider speaking with a licensed professional.
How diversification, cost and risk differ between owning a broad fund and owning shares of single companies.
Principal, interest, taxes and insurance explained, plus how a down payment changes the amount you borrow.
Principal, interest, taxes and insurance explained, plus how a down payment changes the amount you borrow.
Disclaimer: This article is for educational purposes and is not personalized financial, investment, tax, legal, or lending advice. Read the full disclaimer.
