How to Own Hundreds of Companies With One Purchase

Last week’s assignment was to open your 401(k) or IRA and write down the names of what you hold. If you did that, you probably noticed something. Most of the names on that list weren’t companies at all. You likely saw things like “Total Market Index,” “Growth Fund,” or “Target 2035.” Those are funds, and they’re how many of us own the stock market, usually without anyone explaining it.

This week we’re going to make that list readable.

Think of a fund as a basket

Remember the bakery from last week, where buying a share meant owning a slice of one business. A fund works like a basket. A fund company collects money from thousands of investors and uses it to buy small pieces of many companies at once. When you buy one share of the fund, you own a small slice of everything in the basket.

That’s how one purchase can give you a stake in hundreds of companies. A fund that tracks the S&P 500, the index of 500 large U.S. companies we talked about last time, holds all 500 of them. The money you put in gets spread across all of them in proportion to their size, so no single company’s bad quarter can sink you.

Spreading money around like this is called diversification, and it’s the main reason funds exist. Buying one stock means your results depend on one company. Owning a fund means your results depend on a whole group of them. Funds still carry risk, though. They aren’t guaranteed or insured, and you can lose money in a fund, especially in a year when the whole market falls. Some funds are also much less diversified than their names suggest, and a few hold only one industry or even a single stock, so it pays to look at what’s in the basket.

Mutual funds and ETFs

You’ll see two main kinds. A mutual fund is bought directly from the fund company or through your plan, and its price is set once a day after the markets close. An ETF, short for exchange-traded fund, holds a basket the same way, but its shares trade on an exchange all day long, like a stock. You buy it through a brokerage account at whatever the price is at that moment.

For a long-term investor the difference matters less than most people think. Both kinds are registered with the government, both can hold the same investments, and both charge you fees. ETFs have historically tended to cost a bit less to run, and they usually send out fewer taxable payouts, which matters mostly if you hold them in a regular taxable account. Inside a 401(k) or IRA, you’ll often find mutual funds, because many plans offer them.

Index funds and actively managed funds

A fund can be run two ways. An index fund simply copies a list, such as the S&P 500, and holds whatever’s on it. No one is trying to pick winners. An actively managed fund has a manager and a team who choose investments and try to beat the market, and that work costs money.

Both kinds exist as mutual funds and as ETFs.

The one number to find: the expense ratio

Every fund charges a yearly fee, taken out of the fund automatically so you never get a bill. It’s called the expense ratio, and it’s written as a percentage of what you have invested. An expense ratio of 0.40 percent means you pay about $40 a year for every $10,000 in the fund.

Here are the averages for 2025. The average stock mutual fund charged about 0.40 percent. The average index stock ETF charged about 0.14 percent, which is roughly $14 per $10,000. Index stock mutual funds averaged around 0.05 percent, or about $5 per $10,000. Those are averages of what investors actually paid, and individual funds vary a lot. Some actively managed funds charge well over 1 percent.

These numbers look tiny, and that’s why they get overlooked. Even small differences in fees can add up to large differences over time, because a fund with higher costs has to perform better just to leave you with the same result. When you have twenty or thirty years of investing ahead, a fee that’s a fraction of a percent higher is real money.

Here is what that can look like. Say you invest $50,000 and it grows 6 percent a year before fees, with no other deposits. After 25 years, a fund charging 0.05 percent would leave you with roughly $212,000. A fund charging 1 percent would leave you with roughly $169,000. That’s a difference of about $43,000, and the only thing that changed was the fee. This is a simple illustration, not a prediction, since real returns go up and down from year to year.

You can find the expense ratio on your plan’s website, on the fund’s fact sheet, or by searching the fund’s name and ticker. It’s usually listed as “expense ratio” or “net expense ratio.”

The fund you probably own: target date funds

If your 401(k) has something with a year in its name, like “Target 2035,” that’s a target date fund. You pick the year closest to when you plan to retire, and the fund automatically shifts from a heavier mix of stocks toward more bonds as that year gets closer. It’s meant to be a one-stop choice for women who want investing handled for them.

They’re convenient, and they aren’t all the same. Two target date funds with the same year can hold different mixes and charge different fees. The industry average for target date mutual funds in 2025 was about 0.27 percent, with some charging more than four times that. Look up the fund’s expense ratio, and compare it with the other options in your plan.

A few words worth knowing

• Fund: a basket of investments bought with money pooled from many investors.
• Mutual fund: a fund you buy from the fund company, priced once a day.
• ETF: a fund whose shares trade on an exchange all day like a stock.
• Index fund: a fund that copies a market index instead of picking investments.
• Expense ratio: the yearly fee a fund charges, as a percentage of your money.
• Diversification: spreading your money across many investments so no single one decides your result.

What to do this week

Take the list you made last week and add one thing next to each fund: its expense ratio. Write down the type too, whether it’s an index fund, an actively managed fund, or a target date fund. Don’t change anything and don’t buy anything. If one fund on your list costs a lot more than the others, that’s worth noticing, and you can ask your plan administrator or HR about your options. When you finish, you’ll know what you own, what it holds, and what it costs you. Next week we’ll look at the accounts these funds live in, which is why your 401(k) and your IRA follow different rules.

Most of us were handed a 401(k) enrollment form on our first day of work and told to pick something. Nobody sat us down with the list of choices and explained what each one was. Learning to read your own fund list is a small skill, and it changes how you feel about your money. You stop signing off on things you don’t understand and start making choices.

You can own a piece of hundreds of companies, and you can know exactly what that costs you.

Take this further

Want the next step after this one? The Midlife Investor Guide is free in the Guides & Tools library.

Sources

• U.S. Securities and Exchange Commission, Investor.gov, “Mutual Funds and Exchange-Traded Funds (ETFs): A Guide for Investors”
• U.S. Securities and Exchange Commission, Investor.gov, “Characteristics of Mutual Funds and Exchange-Traded Funds (ETFs): Investor Bulletin”
• U.S. Securities and Exchange Commission, Investor.gov, “Target Date Funds: Investor Bulletin”
• Investment Company Institute, Trends in the Expenses and Fees of Funds, 2025

This article is for education and is not personalized financial advice. Investing involves risk, including the loss of money.