When it is time to invest it is essential not to put all your eggs into one basket. You could be liable to significant losses when one investment fails. Diversifying across different asset classes like stocks (representing the individual shares of companies) bonds, stocks or cash is a more effective strategy. This can help reduce investment return as well as allowing you to gain from greater long term growth.

There are many types of funds, including mutual funds, exchange-traded funds and unit trusts (also known as open-ended investment companies or OEICs). They pool funds from several investors to buy bonds, stocks as well as other assets. Profits and losses are shared among all.

Each fund type is unique, and each comes with its own risk. Money market funds, for instance, invest in short-term securities issued by federal, state, and local government or U.S. corporations, and are typically 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 have the potential of growing in value and generating more than average financial gains. Index funds follow a specific stock market index like the Standard and Poor’s 500, while sector funds specialize in particular industries.

If you decide to invest with an online broker, robo-advisor or another type of service, you need to know the types of investments available and the terms. Cost is a crucial factor, since charges and fees can reduce the investment’s return. The best brokers online and robo-advisors provide transparency about their charges and minimums, as well as providing educational tools to help you make informed choices.

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