It's crucial not to put all your eggs into one basket when it is time to invest. You could be liable to significant losses if one investment is unsuccessful. A better strategy is to diversify your portfolio across different categories of investments, including stocks (representing shares in companies), bonds and cash. This will reduce the fluctuations in your investment returns and let you enjoy a greater growth rate over the long run.
There are many kinds of funds, such as mutual funds, exchange-traded funds and unit trusts (also known as open-ended investments companies or OEICs). They pool money from multiple investors to buy bonds, stocks and other assets. Profits and losses are shared by all.
Each fund type has its own characteristics, and each has its own risk. Money market funds, for instance are invested in short-term security issued by federal or state governments, or U.S. corporations, and are typically low risk. Bond funds generally have lower yields but have historically been more stable than stocks, and offer a steady income. Growth funds search for stocks that do not pay a dividend, but have the potential of growing in value and producing higher than average financial gains. Index funds are based on a particular index of the stock market like the Standard and Poor's 500. Sector funds are focused on one particular industry.
It is important to know the types of investments available and their terms, whether you choose to invest with an online broker, roboadvisor, or any other service. The most important factor is cost, as fees and charges can eat into your investment returns over time. The top brokers on the internet and robo-advisors are open about their fees and minimums, and provide educational tools to help you make informed choices.
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