Index Funds vs. Individual Stocks
A stock represents ownership in one company. An index fund follows a defined group of investments. An ETF is a fund traded on an exchange; not every ETF is an index fund, and some focus on a narrow industry.
Hypothetical example
Hypothetical: put $1,000 in one company and a 20% decline leaves $800. Split it equally across 10 companies and a 20% decline in just one, with all others unchanged, leaves $980. All holdings can still fall together.
Key takeaways
- The number of funds is not the number of distinct investments.
- Broad diversification reduces single-company risk, not all market risk.
- Compare objectives, costs and holdings, not just fund names.
Source & context
www.investor.gov — financial education referenceExamples are Sprinvo illustrations, not historical performance or guaranteed outcomes. Education only.