Explain investing like I’m a child…

https://www.reddit.com/r/personalfinance/wiki/401k/

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I highly recommend Mike Piper's book "Investing Made Simple". You can get a dead tree version or download the ebook. Cheap. Short. Does the job. :-) Barring that, the wiki here is excellent: https://www.reddit.com/r/personalfinance/wiki/index

The wiki is obviously great, but basically here's the ELI5. Investing is the practice of finding "projects" that will return more money than the initial outlay. The higher the perceived risk of the project, the higher the expected return should be. A couple things there- I specifically used "perceived" and "expected" because a lot of these investments operate in markets, like the stock market. Basically, if people think there's an opportunity for $10 to return $20 in a single year without a risk of losing the initial $10, everyone will try to put their money there and drive up the price to be part of the "project" until it's about $18 to get back $20 at the end of the year. The other thing in that is the risk. Some investments are riskier than others. A brand new tech company with a good idea but no customers is a fair riskier project to invest in that a company that provides electricity to several states on fixed contracts. One already has a customer base, scale, a proven product, and little competition. The other has none of those. Finally, I've specifically used "projects" instead of the name of financial instruments because basically investing is about some kind of activity. Typically, when you hear about companies "going public" or having an "IPO", the company is trying to raise money to fund projects, whether it's building rockets or widening distribution for an energy drink. In these situations, the current company owners sell some of the company to whoever wants to buy it in order to get money for these projects. Usually, that ownership entitles the buyer to some portion of profits, paid out as "dividends". After that, those ownership shares can be bought and sold with the dividends flowing to whomever holds the ownership. This is what Stock, or Equity is. The other way projects can be funded is by the company borrowing money from people instead of selling parts of the company. It's basically the same as a mortgage- the company needs $100 to do something today, so they go find people who will give them that $100 in exchange for $11 every year for 10 years. This is basically what a Bond is. Bonds tend to have lower returns than stocks because typically, if a company goes backrupt, the debt gets paid before the owners can recoup anything from selling off the rest of the company's assets. This basically means the risk is lower for bonds than stock. The final useful concept here is diversification. If you think about roulette, betting on Red instead of 14 is lower risk because you could hit any red number and win, vs 14 requires a specific number to win. It's the same in investing. You want to hold a bunch of different investments so if any one investment fails, that's ok! The flip side is that if any one investment shoots up, the gains are a bit blunted because it's only a small part of your portfolio. But here's the thing, unless you're playing around with options (WHICH YOU SHOULD NOT DO), your loss on any one investment is capped at the amount you invest. So if you invest $100, you could lose $100. However, that $100 could also turn into $1,000. The downside risk is bounded, the upside opportunity is not. This is basically why, over a 25 year time frame the US stock market has never been negative. Tl:dr- consistently buy S&P index funds from Vanguard or Fidelity, check the balance maybe once a year. Collect stamps if you want a hobby, don't day trade.

A stock is an ownership share of a company. A single share of stock could cost a few cents or several thousand dollars. Most stocks are roughly $5 to $250. The more demand there is for a stock, then the price goes up. If there is little demand, then the price goes down. You can sell your stock shares and you either make a profit, lose money, or break even. Most investors aren't buying stocks directly. Instead, they're buying groups of different stocks. These groups have diferent names such as mutual funds and exchange traded funds (ETFs). The concept with these groups is very simple: You buy one share of the mutual fund (or ETF), and that gets you small portions (fractions) of dozens or hundreds of stocks of different companies. This has three benefits: Your money goes into a much wider variety of companies which spreads out your risk. Second, you are able to buy into stocks that might otherwise be very expensive per share. Third, these funds are managed by people who decide what the fund holds. Many funds are "passive" in that the choices are pre-determined to a large exent. Other funds are more "active" because the fund managers are trying to achieve some specific goal by actively changing what the fund holds. This gives the average, small-time investor advantages they'd otherwise have to do a lot more work/learing to get. These groups of stocks (mutual funds or ETFs) take many, many different forms. Mutual funds and ETFs can also contain things other than stocks. They can contain bonds, money market accounts, certificates of deposit, other mutual funds and ETFs, or a combination of those. The good news for the average investor is that all of this has been figured out. There is not much of a barrier to average people investing in the stock market. For the majority of people who leverage the stock market as a way to grow their retirement savings, things are even more simple because most investment accounts offer a mutual funds that are designed to coincide with your estimated year of retirement.

Make sure you are maxing out your 401k each year. Add to your Roth IRA annually. Open a brokerage account on something like Sofi (it's very easy - download the app on your phone and transfer your money from your choice of bank account). Purchase ETFs - VOO / VXUS (the former is US specific stocks and the latter is Int'l level stocks) as you are able to on a regular basis (e.g. $100 monthly or $500 monthly). And don't obsess over this as the numbers go up and down. This a long term investment like your 401k. Just let it sit and grow. The above is a simple 'three area plan' to get your investment journey started.