The largest portion of my personal wealth was created in mutual funds in my 401k plan.
What are mutual funds? Accroding to the SEC website “A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate.”

Some mutual funds are conservative, and invest in money markets. Then there are bond funds which are just a slight bit riskier. Other mutual funds are aggressive, and invest in small growing companies, or in the emerging markets of foreign countries. Some mutual funds mix stocks and bonds. There are even mutual funds that will start out aggressive, and slowly become more and more convervative over time as the investors near retirement age.
Mutual funds must abide by certain rules. They are not allowed to own more than a certain percentage of a single company. There are also not allowed to have more than a certain percentage of the fund invested in a single company. This forces mutual funds to be diversified to a certain extent. It also prevents mutual funds from walking in and buying up a company lock, stock and barrel.

Alway keep in mind mutual funds are not guaranteed or insured by the FDIC or any other government agency — even if you buy through a bank and the fund carries the bank’s name. You can lose money investing in mutual funds.