When you’re just getting started with investing, the financial world can feel like it speaks a whole different language. Terms like “stocks,” “bonds,” and “index funds” are thrown around constantly, but what do they actually mean? More importantly, how do they fit together, and why should you care?

At the heart of it, these are simply different types of assets you can invest in. Think of them like ingredients in a recipe. Each one plays a different role, and when used together, they can make a more balanced dish—or in this case, a more stable investment portfolio.

Let’s start with stocks. When you buy a stock, you’re buying a tiny slice of ownership in a company. If that company does well, your stock might go up in value, and you could earn money by selling it for more than you paid. Some companies also pay out dividends—small cash payments to shareholders—as a reward for investing. Stocks can be exciting because they have the potential for high returns. But that also comes with risk. Prices can swing wildly based on news, earnings reports, or even social media buzz.

That risk is part of what makes stocks more volatile. You might see great growth one year and then a sharp decline the next. That doesn’t mean stocks are bad—they’re an important part of building long-term wealth. But it’s good to understand that with higher potential reward comes higher potential risk.

Now, let’s talk about bonds. Bonds are like IOUs. When you buy a bond, you’re essentially lending money to a company or government, and they agree to pay you back with interest over time. Unlike stocks, bonds don’t give you ownership in a company. But they do offer more stability. Bond prices don’t usually swing as wildly as stock prices. That makes them a more predictable, steady investment. You probably won’t get rich off bonds, but they can help smooth out the bumps in your investment journey.

Many experienced investors use bonds as a way to reduce the risk in their portfolio. If stocks are the roller coaster, bonds are the merry-go-round. They may not be thrilling, but they’re consistent. That consistency becomes especially valuable as you get closer to retirement and can’t afford big swings in your savings.

Then there are index funds. These are a little different, but in a good way. An index fund is a type of investment that bundles together a whole bunch of stocks (or sometimes bonds) and lets you buy a small piece of the entire group. Instead of picking individual stocks and trying to guess which company will perform best, you buy into a slice of the entire market.

For example, an S&P 500 index fund includes shares from 500 of the biggest companies in the U.S. When you invest in that fund, you’re investing in all those companies at once. If some companies go up and others go down, your investment reflects the average performance. Over time, this has proven to be a powerful strategy. Index funds don’t try to beat the market—they aim to match it. And that simple approach works surprisingly well.

What makes index funds especially attractive for beginners is that they offer built-in diversification. Diversification is a fancy word for spreading out your money. Instead of putting all your eggs in one basket, you spread them across many baskets. That way, if one investment doesn’t do well, it won’t ruin your whole plan.

This is where things start to click. Stocks offer growth. Bonds offer stability. Index funds offer a little bit of both, along with automatic diversification. When you combine these assets in a smart way, you build a portfolio that can handle different market conditions without falling apart.

Let’s say you’re young and just starting to invest. You might choose to have more of your money in stocks because you have time to ride out the ups and downs. As you get older and closer to retirement, you might shift more money into bonds to protect your savings. Along the way, index funds can be your foundation—a simple, low-cost way to stay invested in the market without having to be an expert.

The point is, no single asset type is perfect. They each serve a different purpose, and understanding how they work together is what makes a solid investment plan. Think of your portfolio like a team. You don’t want all quarterbacks or all defenders. You want a mix that plays well together and can adapt to whatever comes your way.

It’s also worth noting that you don’t have to pick and choose each piece yourself. Many online platforms and robo-advisors help you build a balanced mix of stocks, bonds, and index funds based on your goals and risk tolerance. It’s never been easier to get started, and you don’t need to be a financial genius to make good choices.

So the next time you hear someone mention stocks, bonds, or index funds, you won’t have to tune out. You’ll know that each one has a role to play, and together they can help you grow your money with less stress. And in the world of investing, that kind of balance is exactly what you want.

Remember, boring doesn’t mean bad. Sometimes, the most straightforward, well-balanced strategies are the ones that work best. And if you ask us, that’s a pretty exciting way to build your future.