When it comes to investing, it’s important not to put all your eggs in the same basket. You can suffer significant losses if one investment fails. Diversifying across asset classes such as stocks (representing individual shares in companies), bonds or cash is a better strategy. This helps reduce investment returns volatility and may allow you to enjoy higher long term growth.
There are many kinds of funds. These include mutual funds exchange traded funds, mutual funds and unit trusts. They pool funds from multiple investors to purchase bonds, stocks and other investments. Profits and losses are shared among all.
Each type of fund has its own distinct characteristics and comes with its own risk. For example, a money market fund invests in investments for short-term duration that are issued by federal, state and local governments or U.S. corporations, and generally is low-risk. Bond funds tend to have lower yields but have historically been more stable than stocks and offer steady income. Growth funds look for stocks that don’t pay dividends but are capable of increasing in value and earning higher than average financial gains. Index funds are based on a specific index of stocks, such as the Standard and Poor’s 500. Sector funds are geared towards a particular industry segment.
Whether you choose to invest with an online broker, robo-advisor or another option, it’s important to know the various types of investments that are available and the conditions they apply to. Cost is a crucial aspect, as charges and fees can affect your investment return. The best online brokers, robo-advisors, and educational tools will be open about their minimums and fees.