ELI5: What is a mutual fund?

A mutual fund is like a big piggy bank where lots of people put their money together to buy different things.

Imagine you and your friends want to buy lots of different candies, but each candy costs a little bit of money. You only have a small amount, so you can only buy one or two. But if you all put your money together into a big piggy bank, you can buy lots of different candies!

That's what a mutual fund does with stocks (little pieces of big companies) and bonds (like loaning money to the government or companies). Instead of buying just one or two stocks or bonds, the fund manager (the person in charge of the piggy bank) uses all the money from everyone to buy many different ones.

• This helps spread out the risk. If one candy (stock) isn't very good, you still have lots of other candies (stocks) to enjoy.
• A fund manager is a professional who decides which stocks and bonds to buy. It's their job to try and make the piggy bank (mutual fund) grow bigger!
• Each person who puts money in the piggy bank owns a little piece of the whole thing, called a share. If the piggy bank grows, your share becomes more valuable!