Investment Accounts and Strategies

Common Investment Types

Investment Strategies

Diversification

Don't put all your eggs in one basket. Diversification means to buy a variety of investments to help reduce the risk of losing money.

In a well diversified account, when one investment starts to perform poorly, the other investments in your account help make up for the lost money. 

Deciding how to split your money is a personal choice. If the idea of losing money terrifies you, you might prefer to have a higher percentage of bonds than stock. If you want higher returns on your money, you might prefer to have a higher percentage of stocks than bonds. 

Dollar-Cost Averaging

People often say "buy low, sell high" when they discuss investing. While this works in theory, it is difficult to perfectly time the market highs and lows. One strategy to reduce the risk of investing at the wrong time is dollar-cost averaging.

Instead of making large lump-sum investments which risk buying in at high prices, you make several smaller investments over a longer period of time.
For example, if you have $6,000 that you want to invest, you might decide to invest $1000 a month for the next six months.

This strategy reduces the impact of short-term price changes and helps avoid emotional decision-making.

Make Investing Automatic

Investing has the best results when it is done consistently over a long period of time. Setting up automatic transfers from your paycheck or bank account can help you stay committed to your plan. This is helpful for many people because it helps avoid taking the time to come up with an investment plan, but then getting distracted with life and not following through.