When it comes to personal wealth and securing your financial future, investing your money is what the experts swear by. They make it sound easy but the truth is your savings are precious, you aren’t going to hand them over to just anyone. Researching investments is overwhelming with so many investment options and risks to assess, making moving your savings into a more lucrative nest egg daunting.
As hard as it might be to learn to invest it is essential that you take the step to understand investments. No investment comes without risk and there are no money-back guarantees.
A bank savings account might be the safest option, however, it’s not going to provide you with any significant financial growth. Let’s take a look at investment options for your money so you can start putting your rainy-day funds to work…
What is investing?
Investing is putting money aside so that it grows, giving you a nice profit for the future.
Investments come in all shapes and sizes, can be purchased and sold alone or with others and have different maturing times and profit margins.
Where you could invest your money
There are a large number of options for where you could invest your money. The best investments are the ones that correctly match your budget and personal preferences. Think about what you want to achieve and why you are investing. This will help you decide the timeframes you want to follow and the best assets to meet your goals.
Some of the most common investment options in Australia are:
Cash investments are stable, safe and relatively predictable but the price for that security is a much lower return. Usual cash investments are bank term deposits or managed funds. The benefits are that you can access your money quickly.
Fixed interest investments (also known as bonds) are when your money is on loan to a chosen government or company. The company uses your money to increase their business strength and in return, they give you regular interest payments. Your investment will be held under a contracted length of time and returned to you at the conclusion of the agreement.
Investment shares (also known as stocks or equities) are where you pay to own a portion of a company. As a shareholder, you become invested in the company’s success with your shares increasing or decreasing with their growth or decline.
Investment property ownership is a favoured one for many Australians as property purchase and ownership feel familiar. As well as the long-term asset of owning the land there is also rental income. As well as direct property investments you can also invest in real estate mutual funds (REITs) with less risk and smaller outlays.
What to consider before investing your money
There is no formula way to invest to see results, instead, it’s about finding the perfect investment choice for your lifestyle, budget and future financial goals. To get a good match you need to carefully consider the best investment style, risks and what you can afford to pay.
As a baseline, you need to factor in:
Passive vs active investing styles
Choosing between passive and active investing styles comes down to how much time you want to spend.
Active investments rely on strategy, time and research. You can make a lot of money buying and selling stocks but you’ll be putting in a lot of work and research to accurately pick the right times to invest and offload your assets.
Passive investments are the type where your money matures on its own (like bonds), or because you pay someone else to handle it all for you (as with mutual funds).
The amount you choose to invest needs to reflect your budget and the value of the asset.
Before you invest, set aside personal funds to see you through an emergency, such as job loss, dental work or car repairs. It’s also wise to pay down any high-interest debts before you assign money to investments. There is no point earning 9% on stock and paying 16% on your credit card debt.
Your risk tolerance
How comfortable you are with risk will help determine which investment type is right for you. The level of risk is usually in direct correlation with the returns. Finding a balance you are comfortable with is key. Beginner investors can find a robo-advisor and brokers helpful as they can formulate an investment plan that takes risks and goals into account.
As well as the money you have coming in from your investments you need to consider the tax that comes out. Calculating taxes before you invest can give you a better understanding of your overall obligations and how they will affect returns including income tax, GST, stamp duty and capital gains tax.
Tips to getting started in investing
Before you start there is a lot of research to do including what you want to achieve from your investments and how much money you want to make and how you will go about making it.
Identify your financial goals
Know your current financial situation and how much you can afford to invest and work from there to develop some goals for where you want to be – and by when. Consider what you will be using the money earned from investments for; retirement, to give to your children, to go on holiday. This will help assess the right risk and return.
Decide on the management approach
Do you want to handle your assets yourself, have someone manage things with you or have a professional manage your investments for you? You can use a broker or a bot where algorithms and software make decisions for you.
Pick the type of investment account
Buying stocks and bonds usually requires an investment account. There are few to choose from with different benefits, fees, terms and conditions. Make sure you read the fine print carefully and match the account to your goals.
Diversify your portfolio
One thing you’ll hear a lot as you learn how to invest is diversification. What that means is to spread your investments out across different asset types so that if there is a loss in one area, you still have other areas of growth to rely on. While diversifying your investment portfolio is recommended it takes time, research and money to get that far. In most cases, you will build your portfolio piece by piece.
There is no way to really be sure of a return on your investments, especially when you are new to investing and still finding your way. A nationally accredited course will help you invest with confidence by helping you put a strategy in place to build your wealth over time.