When it is time to invest it is essential not to put all your eggs into one basket. If you do, you risk the risk of massive losses in the event that a single investment performs poorly. A better option is to diversify your portfolio across different various asset classes, like stocks (representing shares in companies), bonds, and cash. This can help reduce investment return fluctuations and allows you to gain from greater long term growth.

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

Each type of fund has its own characteristics, and each comes with its own risks. For example, a money market fund invests in short-term investment offered by federal, state and local governments or U.S. corporations. It typically is 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 pay dividends however, they have the possibility of increasing in value and earning more than average financial gains. Index funds are based on a particular stock market index, such as the Standard and Poor’s 500. Sector funds focus on specific industries.

It’s important to understand the types of investments available and their terms, regardless of whether or not you choose to invest through an online broker, roboadvisor, or any other type of service. One of the most important aspects is cost, since charges and fees can cut into your investment return over time. The best brokers online and robo-advisors will be transparent about their fees and minimums, with helpful educational tools to help you make educated choices.