It’s important to not put all your eggs into one basket when it is time to invest. You could suffer huge losses when one investment fails. Diversifying across asset classes like stocks (representing the individual shares of companies) bonds, stocks or cash is a better choice. This helps reduce investment returns as well as allowing you to gain from greater long-term growth.
There are many kinds of funds. They include mutual funds, exchange traded funds and unit trusts. They pool money from numerous investors to purchase stocks, bonds as well as other assets, and then 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 investments offered by federal, state and local governments, or U.S. corporations, and generally is low-risk. Bond funds have historically had lower yields, but they are less volatile and provide a steady income. Growth funds search for stocks that don’t pay a regular dividend but are able to increase in value and provide above-average financial returns. Index funds are based on a specific index straight from the source of the market, such as the Standard and Poor’s 500. Sector funds are focused on a particular industry segment.
If you decide to invest via an online broker, robo-advisor, or another service, it’s vital to be familiar with the various types of investments that are available and the terms they come with. A major factor to consider is the cost, since fees and charges can eat into your investment return over time. The best online brokers, robo-advisors and educational tools will be open about their minimums as well as fees.