It is important not to put all your eggs in one basket when it involves investing. You could suffer huge losses in the event that one investment fails. The best strategy is to diversify your portfolio across different categories of investments, including stocks (representing shares in the individual companies) bonds, stocks, and cash. This can help reduce investment return as well as allowing you to benefit from higher long-term growth.
There are several kinds of funds, such as mutual funds, exchange-traded funds and unit trusts (also known as 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 type of fund has its own characteristics and has its own risks. For instance, a money market fund invests in short-term investments issued by state, federal and local governments, or U.S. corporations. It generally has a low risk. Bond funds generally have lower yields, but have historically been less volatile than stocks and can provide steady income. Growth funds seek out stocks that don’t pay a regular dividend but could increase in value and produce 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 focus on specific industries.
Whether you choose to invest through an online broker, robo-advisor or another service, it’s vital to be familiar with the types of investments available and the terms they come with. One of the most important aspects is cost, since charges and fees can cut into your investment’s returns over time. The top online brokers, robo-advisors and educational tools will be transparent about their minimums and fees.
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