When it comes to investing it is crucial not to put all your eggs in one basket. If you do, you risk the possibility of losing a significant amount if a single investment does poorly. It is better to diversify across asset classes, such as stocks (representing shares in the individual companies) bonds, stocks, and cash. This can help reduce the risk of your investment returns and allow you to gain more long-term growth.
There are several types of funds, including mutual funds exchange-traded funds, unit trusts (also called open-ended investment companies or OEICs). They pool funds from multiple investors to purchase stocks, bonds, and other assets. Profits and losses are shared among all.
Each fund type has its own characteristics and comes with its own risk. For example, a money market fund invests in short-term investment offered by federal, state and local governments, or U.S. corporations. It generally has a low risk. Bond funds tend to have lower yields, but have historically been more stable than stocks, and offer a steady income. Growth funds seek out stocks that do not pay a dividend but are capable of increasing in value and earning higher than average financial gains. Index funds are based on a particular index of the stock market, such as the Standard and Poor’s 500. Sector funds focus on particular industries.
Whether you choose to invest via an online broker, robo-advisor or other service, it’s essential to be familiar with the various types of investments that are available and the terms they come with. Cost is an important aspect, as charges and fees can affect your investment’s returns. The best online brokers, robo-advisors, and educational tools will be honest about their minimums as well as fees.
