It’s important not to put all your eggs in one basket when it is time to invest. You can suffer significant losses in the event that one investment is unsuccessful. It is better to diversify your portfolio across different the different types of assets, including stocks (representing shares in companies), bonds, and cash. This reduces investment returns volatility and may allow you to enjoy higher long-term growth.
There are many types of funds, including mutual funds exchange-traded funds, unit trusts (also called open-ended investment companies or OEICs). They pool funds from a variety of investors to purchase stocks, bonds and other assets and share in the gains or losses.
Each fund type is unique, and each comes with its own risks. Money market funds, for example invest in short-term bonds issued by federal local, state, and federal governments, or U.S. corporations and typically have a low risk. Bond funds typically offer lower yields, however they have historically been less volatile than stocks and offer steady income. Growth funds search for stocks that don’t pay a regular dividend however they have the potential to increase in value and produce higher than average financial gains. Index funds follow a specific stock market index, such as the Standard and Poor’s 500. Sector funds are geared towards a particular industry segment.
It is essential to know the types of investments and their terms, whether you choose to invest via an online broker, roboadvisor or another service. A key factor is cost, since fees and charges can eat into your investment’s returns over time. The best online brokers and robo-advisors are transparent about their fees and minimums, as well as providing educational tools to help you make informed decisions.
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