When it is time to invest, it’s important not to put all your eggs in the same basket. You could suffer huge losses in the event that one investment does not work. Diversifying across asset classes such as stocks (representing individual shares in companies) bonds, stocks, or cash is a more effective strategy. This will help decrease the risk of your investment returns and allow you to gain more long-term growth.
There are several kinds of funds, such as mutual funds, exchange-traded funds and unit trusts (also called open-ended investment companies or OEICs). They pool funds from many investors to purchase stocks, bonds or other assets and share in the profits or losses.
Each type of fund has its own distinct characteristics, and each has its own risks. Money market funds, for example invest in short-term bonds issued by federal state, local, and federal government or U.S. corporations and generally have low risk. These funds usually have lower yields but have historically been less volatile than stocks and offer steady income. Growth funds look for stocks that do not pay a dividend however, they have the possibility of growing in value and generating higher than average financial gains. Index funds track a specific stock market index like the Standard and Poor’s 500, sector funds focus on a specific industry segment.
If you decide to invest via an online broker, robo-advisor, or other service, it’s essential to know the types of investments available and the terms they come with. The most important factor is cost, as charges and fees can eat into your investment return over time. The top brokers on the internet and robo-advisors are transparent go to website about their fees and minimums, with helpful educational tools to help you make educated decisions.