When it comes to investing it is essential not to put all your eggs in one basket. Doing so exposes you to the possibility of losing a significant amount if a single investment does poorly. Diversifying across asset classes such as stocks (representing individual shares in companies) bonds, stocks, or cash is a better choice. This helps reduce investment returns fluctuation and could allow you to benefit from higher long term growth.

There are a variety of funds. These include mutual funds, exchange traded funds and unit trusts. They pool funds from multiple investors to purchase stocks, bonds, and other assets. Profits and losses are shared by all.

Each type of fund has its own characteristics and risk factors. For instance, a cash market fund invests in short-term investments issued by federal, state and local governments or U.S. corporations, and generally is low-risk. Bond funds tend to have lower yields but read more have historically been less volatile than stocks and can provide steady income. Growth funds search for stocks that do not pay a regular dividend but have the potential to grow in value and yield above-average financial returns. Index funds follow a specific stock market index, such as the Standard and Poor’s 500. Sector funds are geared towards one particular industry.

If you decide to invest via an online broker, robo-advisor or other service, it’s essential to be familiar with the kinds of investments you can choose from and their terms. Cost is a crucial factor, as charges and fees can affect your investment return. The top online brokers and robo-advisors will be transparent about their fees and minimums, and provide educational tools to help you make educated decisions.