Similar to an IOU, a bond is an agreement to repay a debt and is generally issued by a government or corporation. When you invest in a bond, you lend the issuer money, who then pays you regular interest payments, and repays the principal at a specified date. Because bond prices move in the opposite direction to interest rates, bond prices can sometimes lose value. Companies that are more creditworthy usually pay lower interest rates. Again, by investing in a group of bonds through a fund rather than any one issue, you lower your risk of exposure to any one company's performance.
Stocks represent ownership in a corporation.
US large company stock funds are generally more conservative than small, international, or emerging market stocks. Additionally, as some of the large stocks pay dividends, they provide an income stream than can help to cushion to protect principal and lessen the effects of adverse market conditions. Again, by investing in a group of stocks through a fund rather than any one issue, you lower your risk of exposure to any one company's performance. International Stock Fund. International investments will also be affected by fluctuations in currency exchange rates, and some countries may experience political or social instability.