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Stock Funds
Have you ever watched a business grow from a small storefront to a huge chain and said to yourself, "Gee, I wish had a piece of that"? Well you probably can, through stock.Stock is ownership in a company, a "piece of the pie." Stock is measured in shares. Each share is a portion of the company you "own."
Example — Let's say your brother starts a company and issues a total of 100 shares in the company. He keeps 50 shares and gives you 20. How much of the company do you own? You own one-fifth, or 20% (20 divided by 100). Your brother owns half of the company, or 50% (50 divided by 100).
When you buy shares of stock, you gain a right to receive any future dividends (payments of company earnings made to its owners) and vote on company business. You can also benefit if you sell stock at a higher price than you paid for it - or lose, if you sell stock at a lower price than you paid for it.
Stock funds are run by professional investment managers who pool many people's money to be able to buy large amounts of stocks at lower cost and to spread risk. Stock funds are riskier than other types of investments, like cash and bonds, but they are nearly always part of an effective long-term retirement savings strategy. Why?
- Even though stock values move up and down, stocks have performed better than other types of investments over long periods of time.
- Stock funds have provided the best inflation protection over the long term, because their value has grown faster than inflation and faster than bond or money market funds.
- Long-term growth and staying ahead of inflation are key to building your retirement savings.
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