When it is time to invest it is crucial not to put all your eggs in the same basket. You can suffer significant losses when one investment does not work. Diversifying across asset classes such as stocks (representing individual shares in companies) bonds, stocks or cash is a better strategy. This helps to reduce investment returns fluctuation and could allow you to enjoy higher long-term growth.
There are a variety of types of funds, including mutual funds exchange-traded funds, unit trusts (also called open-ended investment companies or OEICs). They pool money from numerous investors to purchase stocks, bonds as well as other assets, and then share in the profits or losses.
Each fund type has its own characteristics, and each comes with its own risks. For example, a money market fund invests in short-term investments issued by federal, state and local governments, or U.S. corporations, and generally has a low risk. Bond funds tend to have lower yields but have historically been more stable than stocks and can provide steady income. Growth funds search for stocks that do not pay a dividend however, they have the possibility of growing in value and producing higher than average financial gains. Index funds track a particular index of the stock market, such as the Standard and Poor’s 500, sector funds concentrate on specific industries.
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 crucial aspect, as fees and charges will take away from your investment return. The best online brokers, robo-advisors and educational tools will be honest about their minimums and fees.
