Mutual fund.
In plain English
A mutual fund is a single investment that holds dozens or hundreds of underlying stocks or bonds. When you buy a share of the fund, you indirectly own a slice of everything in it. Mutual funds are priced once per day, after the market closes, unlike stocks and ETFs, which trade continuously during market hours.
01Why it matters
Mutual funds were the original 'just buy one thing and own a lot of stocks' product. Most 401(k)s offer mutual funds as the main investment choice. They're still widely used, though many people have shifted to ETFs (which work similarly but trade like stocks and often charge lower fees).
02The math, step by step
A common workplace 401(k) might offer 'Vanguard Total Stock Market Index Fund.' Buying a share gives you fractional ownership in roughly 4,000 U.S. companies at once. Apple, Microsoft, Coca-Cola, smaller companies, all in one fund. If you buy at 11 AM, your purchase actually executes at the 4 PM closing price.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Mutual funds and ETFs are very similar, both are baskets of investments. Mutual funds price once a day; ETFs trade like stocks throughout the day. Mutual funds often have higher minimum investments ($1,000-$3,000) and may charge sales loads; ETFs typically have no minimum beyond one share and no load. In a 401(k), mutual funds are still standard. In a regular brokerage account, ETFs are often more practical.
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