Stocks or funds: what is the difference?

One stock, or all of them

Here is $1,000 in each of the 12 companies among today's largest in the US that have prices from the start of 2000, with dividends reinvested. The last row is the same money split equally across all of them, bought once and never changed.

In a single company you could get far more or far less. 10 of the 12 companies returned less than the equal split, because the few that did best pull it up. Someone who bought only a few companies usually got less than all of them together, but sometimes far more.

These are the largest companies today, so the ones that disappeared or shrank along the way are missing. A real fund from 2000 would have owned some of those too. More companies and start years are in the study of the stock market's average return, and you can try one company yourself in the if-I-had-invested calculator.

The differences in short

• Ownership. With a stock you own part of the company and can vote. With a fund you own fund shares, and the fund votes.
• Spread. A fund holds many companies, see the lesson on mutual funds. With stocks you decide how many companies you own, and how many it takes is in the lesson on diversifying.
• Cost. A stock costs a commission, if any, and the spread when you trade, but nothing while you hold it. A fund charges a fee every year, see what fees cost over 30 years.
• Trading. Stocks trade all day. Mutual funds are bought once a day at the NAV. ETFs sit in between, see the lesson on ETFs.
• Work. With stocks you choose companies. With an index fund nobody does.