If you’d like your money to start working for you, it’s time to learn about investing. Everyone has different needs and circumstances but here are some basics to consider. Of course, we recommend you contact us before you start putting your money into any form of investment.
What are your goals?
Start by setting your investment goals. Since each investment will vary in its potential for risk and returns, you need to choose the right investments to help you achieve your goals:
- short-term goals—like saving to pay for a car or holiday in the next six months to two years
- medium-term goals—what you want to achieve in the next two to five years, like starting a business
- long-term goals—if your goal is more than five years away, like saving for a child’s education.
As a potential investor, you can be exposed to many investment promotions every day. That’s why it’s important to understand the basics of investment strategies.
These include principles like diversification and dollar cost averaging, designed to help your investments work to achieve your goals.
Choosing the right investment option
Invest some time in making the right choices
Once you’ve put some thought into your short, medium or long-term investment goals, it’s time to look into your investment options. Certain types of investments, or asset classes, may help you reach your goals in a way that suits you.
When considering different investments, consider some key points.
Your risk tolerance
Your risk tolerance is affected by two key factors: the amount of time you have to invest and your attitude to risk.
It’s true that every investment involves some risk, but some are generally more unpredictable or volatile than others.
If you have a long-term goal, you may have time to ride through the market’s ups and downs and thereby even-out the impact of risk on your investment.
On the other hand, if your goal is short-term, you may choose to take a more conservative approach, because you won’t have the luxury of time.
But if you’re comfortable taking risks and you have big investment goals, you may decide to invest in riskier options. If you’re a conservative investor, you’re likely to prefer safer investment options, even over the long term.
The type of investment
Your risk tolerance will influence the type of investments you make:
Investment type (asset class) – General risk-return level
Cash (savings accounts, term deposits) – Low risk, possibly low returns
Fixed income (bonds, debentures) – Low risk, investments can be linked to inflation rate
Property (buildings, land, factories) – Moderate to high risk
Equities (shares) – High risk due to numerous economic and global factors
We’ve covered some basic types of investments, but you could also consider:
insurance bonds—They’re flexible, tax-effective investments for medium to long-term goals. You can invest a single lump sum or make regular contributions to build your wealth.
managed funds—Your money is pooled with that of many investors and invested across a range of asset classes and managed by a trustee or professional fund manager.
investing in property through a managed fund or super fund—This could give you exposure to a wide range of properties in Australia and overseas, which provides you with investment diversification so not all your eggs are in one basket.