Some funds have little credit risk, such as those that invest in government bonds. Because of this, you can lose money in any bond fund, including those that invest only in government bonds. Not all stock funds are the same. For example, growth funds focus on stocks that may not pay a regular dividend but have the potential to increase in value. Others specialize in a particular industry segment such as technology stocks.
Stock funds are more appropriate for Teenvestors than bond funds.
First, a fund may receive income in the form of dividends and interest on the securities it owns. A fund will pay its shareholders nearly all of the income it has earned in the form of dividends. Second, the price of the securities a fund owns may increase-this is known as capital appreciation. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains to investors.