Stock funds invest primarily in stocks. A share of stock represents a unit of ownership in a company. If a company is successful, shareholders can profi t in two ways: the stock may increase in value, or the company can pass its profi ts to shareholders in the form of dividends. If a company fails, a shareholder can lose the entire value of his or her shares; however, a shareholder is not liable for the debts of the company.

When you buy shares of a stock mutual fund, you essentially become a part owner of each of the securities in your fund’s portfolio. Stock investments have historically been a great source for increasing individual wealth, even though the stocks of the most successful companies may experience periodic declines in value. Over time, stocks historically have performed better than other investments in securities, such as bonds and money market instruments. Of course, there is no guarantee that this historical trend will be true in the future. That’s why stock funds are best used as long-term investments.