Diversify Your Investments
When it is time to invest it is essential not to put all your eggs in the same basket. You can suffer significant losses if one investment is unsuccessful. A better option is to diversify across the different types of assets, including stocks (representing shares in the individual companies), bonds and cash. This helps reduce investment returns fluctuation and could allow you to enjoy higher long-term growth.
There are a number of types of funds, including mutual funds exchange-traded funds, unit trusts (also called open-ended investment companies or OEICs). They pool money from many investors to purchase bonds, stocks as well as other assets, and then take a share of the profits or losses.
Each type of fund is unique, and each comes with its own risks. For instance, a money market fund invests in short-term securities offered by federal, state and local governments as well as U.S. corporations and typically has a low risk. Bond funds have historically had lower yields, but are more stable and offer a steady income. Growth funds search for stocks that don’t pay dividends but are capable of increasing in value and generating above-average financial returns. Index funds are based on a specific index of the stock market such as the Standard and Poor’s 500. Sector funds are focused on specific industries.
It is essential to know the types of investments and their terms, regardless of whether or not you choose to invest with an online broker, roboadvisor, or another service. One of the most important aspects is cost, since charges and fees can cut into your investment returns over time. The best online brokers, robo-advisors, and educational tools will be transparent about their minimums and fees.