A stock is a security with which you buy a small part of a publicly traded company. For example, if you own a stock of Apple, a large bank or a car manufacturer, you own a part of this company. In the past, as a stockholder, you would have received a certificate from this company in exchange for your money. Today, it's virtual, but still based on the same principle: a certain amount of money can be exchanged for stocks, and with that, a part of that company.

When you, on the other hand, buy a bond from a company or a government, you lend them money, i.e. you give them a loan. Symbolically speaking, you get a piece of paper that says you have lent money to a company or government and will get it back at the end of a fixed period. Plus interest. These interest rates vary and depend, amongst other things, on the current key interest rate in the economy and the risk that you as an investor are taking by lending your money.

And, last but not least, you can imagine ETFs to be bundles of many different stocks or bonds that you invest in at the same time, by simply investing in a single ETF. By investing in many different companies at once, you significantly lower your investment risk because you are spreading your money across many different stocks or bonds. Simply put, you’re not putting all your eggs in one basket.

Did this answer your question?