It’s important not to put all your eggs into one basket when it comes to investing. Doing so exposes you to the possibility of significant losses when a single investment performs poorly. It is better to diversify across asset classes, such as stocks (representing shares in companies) bonds, stocks, and cash. This reduces investment returns volatility and may allow you to benefit from higher long term growth.

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

Each type of fund has its own unique characteristics and has its own risk. For instance, a cash market fund invests in short-term securities issued by state, federal and local governments, or U.S. corporations, and generally is low-risk. Bond funds have historically had lower yields, however they are less volatile and provide a steady income. Growth funds search for stocks that do not pay a dividend, but have the potential of increasing in value and generating more than average financial gains. Index funds track a particular index of the stock market, such as the Standard and Poor’s 500, sector funds concentrate on specific industries.

It is essential to know the types of investments and their terms, regardless of whether you choose to invest with an online broker, roboadvisor, or any other type of service. Cost is a major factor, since fees and charges will eat away at your investment’s returns. The top online brokers and robo-advisors will be transparent about their fees and minimums, and provide educational tools to assist you in making informed choices.