A money market fund is most appropriate for money that will be needed in the near future or for an emergency fund. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Bond funds invest in government or corporate IOUs that are longer term than the securities purchased by money market funds. The value of bond fund shares can be expected to fluctuate as interest rates change, and longer-term funds fluctuate the most. Bond funds are appropriate for investors who want a higher level of current income than that paid by money market funds or for those who want to balance their portfolios with fixed-income investments.
Stock funds invest in common stocks, which represent part ownership of corporations.
Most of the investment return provided by stock funds has come from rising stock prices, but some of it comes from dividends paid to stockholders. A stock fund is an appropriate investment for a long-term financial goal. The value of balanced fund shares can also be expected to fluctuate. A balanced fund may be appropriate for an investor who wants a single investment that exhibits less volatility than an all-stock fund while providing current income and a higher potential for growth than a bond or money market fund. Some investors choose to invest directly in stocks and bonds, but it's very difficult to create a properly diversified portfolio with individual securities unless you have substantial assets.