Investing · About 20 minutes · thedime.news/resources/worksheets/stocks-bonds-diversification/

Stocks, bonds and diversification

What you actually own when you invest, and why spreading your money out matters.

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When you buy a stock, you own a small slice of a company. If the company grows and earns more, the stock may rise, and some companies pay dividends. If it struggles, the stock can fall, sometimes a lot.

When you buy a bond, you lend money to a government or company. It pays you interest and returns your money on a set date. Bonds usually move less than stocks and usually earn less over the long run.

Diversification means spreading your money across many investments so one bad pick can't sink you. An index fund does it for you: an S&P 500 index fund owns a slice of about 500 large U.S. companies. Over long periods, U.S. stocks have returned more than bonds or savings accounts, with big drops along the way, and past returns don't guarantee future ones.

Words to know

Write what each word means in your own words.

1. Stock
2. Bond
3. Dividend
4. Diversification
5. Index fund

Questions

1. Owning one share of a company's stock means you...
   1. Lent the company money
   2. Own a small part of the company
   3. Work for the company
   4. Are guaranteed a profit
2. Rank these from lower risk (1) to higher risk (4).

   Investment	Rank
   One new tech company's stock
   Savings account at an FDIC-insured bank
   S&P 500 index fund
   U.S. Treasury bond

3. You put $1,000 into one company's stock and it falls 50%. How much is left? By what percent does it have to rise to get back to $1,000?
4. Another investor splits $1,000 evenly across 10 companies. One falls 50%, and the other nine don't change. How much does the investor have now?
5. Why might a teenager investing for 40 years choose mostly stocks, while someone retiring next year might choose more bonds?

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