Diversify Your Investments

It’s important to not put all your eggs in one basket when it comes to investing. This can expose you to the potential for significant losses if a single investment does poorly. Diversifying across asset classes like stocks (representing individual shares in companies), bonds or cash is a better strategy. This helps reduce investment returns fluctuation and could allow you to reap the benefits of 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 money from multiple investors to purchase stocks, bonds and other investments. Profits and losses are shared among all.

Each fund type has its own unique characteristics and comes with its own risk. For example, a money market fund invests in short-term investments issued by federal, state and local governments, or U.S. corporations and typically has a low risk. Bond funds have historically had lower yields, but they are more stable and offer a steady income. Growth funds seek out stocks that don’t have a regular dividend but are able to grow in value and yield higher than average financial gains. Index funds are based on a particular index of stocks like the Standard and Poor’s 500. Sector funds are focused on a particular industry segment.

It’s important to understand the types of investments available and their terms, regardless of whether or not you choose to invest via an online broker, roboadvisor or another company. One of the most important aspects is cost, since fees and charges can eat into your investment returns over time. The top online brokers and robo-advisors will be transparent about their charges and minimums, and provide educational tools to help you make informed choices.

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