It’s important not to put all your eggs in one basket when it comes to investing. You can suffer significant losses if one investment is unsuccessful. Diversifying across different asset classes like stocks (representing individual shares in companies) bonds, stocks, or cash is a better choice. This reduces investment returns as well as allowing you to benefit from higher long term growth.
There are several kinds of funds, such as mutual funds, exchange-traded funds and unit trusts (also known as open-ended investment companies or OEICs). They pool funds from a variety of investors to purchase bonds, stocks or other assets and share in the profits or losses.
Each type of fund has its own unique characteristics and comes with its own risk. For instance, a money market fund invests in short-term investment offered by federal, state and local governments or U.S. corporations. It generally is low-risk. Bond funds have historically had lower yields but are less volatile and can provide steady income. Growth funds search for stocks that don’t pay dividends, but have the potential of growing in value and producing above-average financial gains. Index funds are based on a specific index of the stock market, such as the Standard and read more Poor’s 500, sector funds concentrate on certain industries.
It is important to know the different types of investment options and their terms, regardless of whether you decide to invest with an online broker, roboadvisor, or another service. One of the most important aspects is cost, as charges and fees can cut into your investment return over time. The top online brokers and robo-advisors will be transparent about their fees and minimums, with helpful educational tools to help you make informed choices.