Stocks, Bonds, Funds, and ETFs: How They Differ

1.A Stock Is Ownership; a Bond Is Money Lent

A stock is a small slice of ownership in a company. Because shareholders own part of the company, they may receive dividends when the company shares out its profits, and the share price rises or falls as the market's view of the company's value changes. There is no fixed return, and if the company runs into trouble, the share price can fall sharply or become almost worthless.

A bond is a certificate that a company or government issues when it borrows money. The buyer becomes the lender, receiving the promised interest (the coupon) on the promised dates and getting the principal (the face value) back at maturity. It differs from a stock in that, if you hold it to maturity and the borrower keeps its promise, the amount you will receive is fixed in advance. But there is credit risk, the risk that the borrower cannot repay, and if you sell before maturity you get the market price at that time. As a general rule, if a company goes bankrupt, bondholders are repaid from the remaining assets before shareholders.

Even for the same company, stocks and bonds have differently shaped risks. Bondholders receive no more than the promised interest even if the company grows enormously, while shareholders share in that growth. In return, shareholders are also the first to absorb losses when the company struggles. Neither is simply better; the range of possible results is just different.

2.When Interest Rates Rise, Bond Prices Fall

The interest on a bond that has already been issued is fixed. But when market interest rates rise, newly issued bonds pay more. Then no one will pay full price for an old bond paying less, so its price falls until it trades at a level where its yield is similar to that of new bonds. Conversely, when market rates fall, the price of old bonds rises. The present-value calculation from Lesson 1 is exactly how bond prices are set.

The longer the maturity, the more the price moves for the same change in rates, because there are more years to discount. In the examples below, see how differently a 1-year bond and a 2-year bond respond to the same rise in rates.

3.Funds: Pooling Money, Handing It Over, and Paying Fees

A fund pools money from many people, and professional managers invest it across stocks, bonds, and other assets. Its key features are that even a small amount gives you a share of many assets, and that investment decisions are left to the management company. In return you pay fees every year for management, sales, administration, and so on, and these fees come out of the fund's assets whether it makes or loses money.

Fees look small as numbers, but like the compounding in Lesson 1, they build up year after year and the gap grows. The example below uses the simple assumption that fees are subtracted from the return. The return is a hypothetical figure for illustration; real returns vary from year to year and can be losses.

4.How ETFs Differ from Ordinary Funds

An ETF (exchange-traded fund) is also a fund. The difference is that it is listed on an exchange like a stock, so you can buy and sell it during market hours at a price that changes from moment to moment. With an ordinary fund, you buy in and redeem at a reference price (net asset value) set once a day, and often the price applied is one set after the day you place your order. Many ETFs are designed to track a particular index, and such ETFs tend to have relatively low fees, though not every ETF does.

Even an index-tracking ETF does not return exactly the same as its index. This gap, caused by fees, trading costs, and small differences in holdings, is called the tracking difference. For example, if the index rose 10% in a year and the ETF rose 9.7%, the tracking difference is −0.3 percentage points. Also, because ETFs trade on the market, the trading price can briefly drift from the actual value of the assets, and buying and selling involves trading costs. In Korea (as of 2026), tax treatment can also differ from product to product, so check official guidance.

5.Deposits vs. Investment Products: What Is Protected and What Is Not

A deposit is a contract in which you leave money with a bank or similar institution and receive promised interest; both principal and interest are fixed. Investment products have no fixed return and can lose principal. Even if they are sold at the same counter of the same financial company, a deposit and an investment product are entirely different contracts.

In Korea (as of 2026), the Korea Deposit Insurance Corporation protects deposits up to KRW 100 million per person per covered financial institution, principal and interest combined (since September 2025; before that it was KRW 50 million. Community credit cooperatives, credit unions, and similar institutions follow their own separate protection schemes). This means that even if the institution fails, you can get back up to this limit. Investment products such as funds, stocks, and ETFs, however, are not covered by deposit protection. Rules can change, so check official guidance from the Korea Deposit Insurance Corporation, the Financial Supervisory Service, and other official bodies.