Interest is added monthly and paid when a bond is cashed in. They can be held for up to 30 years and are sold at full face value. Investors may redeem their bonds after 6 months but pay a 3-month penalty on redemptions before 5 years. Over 500 companies allow investors to purchase their first share - and subsequent shares directly. All industry segments are represented, including almost half of the companies that comprise the Dow Jones Industrial Average.
Index funds hold stocks that comprise a market index.
They were first created in 1976 and today there are funds that track dozens of stock, bond, and international market indices. Instead of including 100 or more stocks in their portfolio, these funds hold 20 to 30. Their biggest risk is low diversification and their advantage is superior performance if they own the right stocks at the right time. Concentrated funds are very volatile because they are impacted by the performance of relatively few stocks. Thus, investors should have a long time horizon.