When it comes to investing, it’s important not to put all your eggs in one basket. Doing so exposes you to the possibility of losing a significant amount should one investment perform poorly. Diversifying across different asset classes, such as stocks (representing individual shares in companies) bonds, stocks or cash is a better strategy. This will reduce the fluctuations in your investment returns and let you benefit from a higher rate of growth over the long term.
There are several types of funds, including mutual funds, exchange-traded funds and unit trusts (also known as open-ended investments companies or OEICs). They pool money from multiple investors to purchase stocks, bonds and other assets. Profits and losses are shared among all.
Each fund type has its own distinct characteristics, and each comes with its own risks. For instance, a money market fund invests in short-term securities offered by federal, state and local governments, or U.S. corporations. It generally has low risk. These funds usually offer lower yields, however they have historically been less volatile than stocks and offer steady income. Growth funds are a way to find stocks that don’t pay regular dividends but are able to grow in value and yield higher than average financial gains. Index funds track a particular market index, such as the Standard and Poor’s 500, while sector funds specialize in a specific industry segment.
Whether you choose to invest with an online broker, robo-advisor or another type of service, you need to be knowledgeable about the types of investments available and their terms. Cost is a major factor, as charges and fees can eat away at your investment’s returns. The best online brokers and robo-advisors are transparent about their fees and minimums, as well as providing educational tools to help you make educated decisions.
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