This way, you may have less risk than if you just put your money in one bond. Bonds and bond funds are in the middle risk level. They are more conservative than stocks, but less conservative than money markets. Once again, unlike bank accounts, bond mutual funds are not guaranteed by the government. Stocks represent a piece of ownership in a company.
Companies can offer stock to the public to gain money.
Stocks are different than bonds in that you own a piece of the company, whereas bonds are just a way for companies to borrow money. Companies can pay people that buy their stock, but not with interest. Instead, the company uses the money they received from people who bought their stock, to make the company grow. When the price goes up, people that bought the stock at a lower price make money. In addition to single stocks, people can also buy stock mutual funds.