Stocks give shareholders the right to share in any future profits that corporations may generate. The main risk of stock investing is that future profits are unpredictable and that companies may go bankrupt. Bonds provide bondholders the right to receive a fixed stream of future payments that serve to repay the loan. Bonds are risky because of the possibility that the corporations or government bodies that issued the bonds may default on them, or make less than the promised payments.

Mutual funds own and manage portfolios of bonds and stocks; fund investors get the returns generated by those portfolios.

The risks of mutual funds to investors reflect the risks of the stocks and bonds that are in their respective portfolios.