When it is time to invest it is important to not put all your eggs in one basket. You can suffer significant losses if one investment is unsuccessful. The best strategy is to diversify your portfolio across different categories of investments, including stocks (representing shares of companies) bonds, stocks and cash. This will help decrease the volatility of your investment returns and let you enjoy higher long-term growth.
There are many 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 take a share of the gains or losses.
Each kind of fund comes with its own distinct characteristics and risk factors. For instance, a money market fund invests in short-term securities issued by state, federal and local governments or U.S. corporations. It typically has a low risk. Bond funds typically have lower yields, but are less volatile and provide steady income. Growth funds seek out stocks that don’t pay regular dividends but have the potential to grow in value and generate above-average financial gains. Index funds track a specific market index, such as the Standard and Poor’s 500, sector funds are focused on particular industries.
It is important to know the different types of investments and their terms, regardless of whether you choose to invest via an online broker, roboadvisor, or any other service. A key factor is cost, as fees and charges can eat into your investment returns over time. The best online brokers and robo-advisors are open about their fees and minimums. They also provide educational tools to help you make informed choices.