It is important not to put all your eggs into one basket when it comes to investing. There are significant losses when one investment does not work. Diversifying across different asset classes, such as stocks (representing individual shares in companies) bonds, stocks, or cash is a better option. This reduces investment returns fluctuations and allows 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 called open-ended investment companies or OEICs). They pool money from numerous investors to purchase stocks, bonds as well as other assets, and then take a share of the profits or losses.
Each type of fund has its own unique characteristics and has its own risk. For instance, a cash market fund invests in short-term investments that are issued by federal, state and local governments, or U.S. corporations, and generally is low-risk. Bond funds have historically had lower yields, but are less volatile and can provide steady income. Growth funds search for stocks that do not pay a dividend, but have the potential of increasing in value and earning above-average financial returns. Index funds follow a specific stock market index such as the Standard and Poor’s 500. Sector funds are focused on one particular industry.
Whether you choose to invest via an online broker, robo-advisor, or another service, it’s vital to be aware of the various types of investments that are available and the terms. Cost is a major factor, since charges and fees can affect the investment’s return. The best brokers online and robo-advisors will be transparent about their charges and minimums, and provide educational tools to assist you in making informed choices.
https://highmark-funds.com/2021/12/23/market-risk-management-and-risk-calculations