When it comes to investing it is important to not put all your eggs in one basket. By doing this, you expose yourself to the possibility of significant losses if a single investment does poorly. Diversifying across asset classes such as stocks (representing the individual shares of companies), bonds or cash is a better option. This will reduce the fluctuation of your investment returns and let you benefit from a higher rate of growth over the long term.
There are many kinds of funds. They include mutual funds exchange traded funds, and unit trusts. They pool funds from multiple investors to buy stocks, bonds and other assets. Profits and losses are shared by all.
Each fund type has its own characteristics, and each has its own risks. Money market funds, for instance invest in short-term bonds issued by federal local, state, and federal government or U.S. corporations and typically have a low risk. Bond funds generally have lower yields but have historically been more stable than stocks and can provide steady income. Growth funds seek out stocks that do not pay a dividend, but have the potential of growing in value and producing above-average financial gains. Index funds follow a specific stock market index like the Standard and Poor’s 500. Sector funds focus on one particular industry.
It is important to know the different types of investments and their terms, regardless of whether or not you choose to invest through an online broker, roboadvisor or another service. One of the most important aspects is cost, since charges and fees can cut into your investment return over time. The top online brokers, robo-advisors, and educational tools will be open about their minimums and fees.
