When it is time to invest, it’s important not to put all your eggs in one basket. You can suffer significant losses in the event that one investment does not work. A better strategy is to diversify your portfolio across different the different types of assets, including stocks (representing shares of companies), bonds and cash. This will reduce the fluctuations in your investment returns and allow you to benefit from a higher rate of growth over the long term.
There are several types of funds, including mutual funds exchange-traded funds, unit trusts (also known as open-ended investment companies or OEICs). They pool funds from a variety of investors to purchase bonds, stocks and other assets and share in the profits or losses.
Each type of fund has its own characteristics and risk factors. Money market funds, for example, invest in short-term securities issued by the federal or state government or U.S. corporations, and are typically low risk. These funds usually have lower yields, but have historically been less volatile than stocks and provide steady income. Growth funds are a way to find stocks that don’t have a regular dividend but have the potential to grow in value and generate above-average financial returns. Index funds are based on a specific index of the stock market, such as the Standard and Poor’s 500, while sector funds specialize in a specific industry segment.
Whether you choose to invest through an online broker, robo-advisor or another type of service, you need to be familiar with the kinds of investments you can choose from and the terms they come with. Cost is a major element, as charges and fees can reduce your investment’s returns. The best online brokers, robo-advisors, and educational tools will be honest about their minimums and fees.