INVESTING

Shares are generally considered a growth asset (that is, they grow your capital), but can also provide income through the payment of dividends. 

This is a part ownership in a property trust or company, generally listed on a stock exchange. Because the property securities are traded like shares, their value can rise and fall according to market conditions. Property can offer both capital growth and income. 

This is where you lend a company, semi-government or government authority a sum of money and, in return, receive regular interest payments. Each fixed security has a ‘term to maturity’ which is the period of time over which you receive income payments before capital is returned to you. Identify your attitude to investing 

Read the following questions and think about which description you feel most closely resembles your investment objectives.

Q Are you happy with low growth investments that provide returns marginally above inflation for very low risk or are you prepared to take more risk with your investments to potentially achieve significantly higher returns?

Q Are you security-conscious or are you prepared to accept short‑term volatility?

Investing is like climbing a ladder, the higher you go, the more you can accomplish but the riskier the venture becomes. The higher the level of risk you are willing to accept, the higher the potential returns may be. Conversely, if you prefer to take less risk, you may be more willing to accept a lower return for less fluctuation. Now go to the chart above and select your risk profile – low, medium or high risk.

Next you need to look at your investment objectives and expectations. Are you building wealth so that you can retire sooner or do you want your investments to provide a regular income stream? Or perhaps you are looking for both. Different funds aim to provide varying levels of income and growth.

Generally speaking, investments that aim to provide an income stream are more conservatively invested (for example, cash and fixed interest), whereas those that focus on growth invest more aggressively in Australian and international shares. Now choose the point across the chart which best describes the levels of growth and/or income you wish to achieve.

Think about what your objectives are. Are you saving for a holiday or a deposit on a new home and will you need the money in the next year or so? Or, are you saving for retirement and don’t need to access the money for at least five years.

The timeframe of your goals will help you decide how to invest your money. Now choose the place on the chart that best suits your timeframe for investing. Remember, the longer you have to invest the more risk you may wish to take and vice versa.

Now that you have identified your level of risk, investment objectives and time frame for investing, you can plot them on the diagram. The next step is to read a product disclosure statement and speak with one of financial adviser to understand what types of funds are available and whether they suit your investment objectives.

Managed funds can reduce your risk by spreading the investment across companies, industries, sectors and countries.

You can increase the potential for compound returns by reinvesting the investment earnings. This compounding effect means that a small improvement in your investment returns could make a big difference over time.

You can choose to invest a regular amount each month. By investing regularly you can smooth out the impact of fluctuations in the market and reduce the risk of investing large quantities of money at an unfortunate time. 

The return from a managed fund can come in two forms – income (paid to you as a ‘distribution’) and changes in the unit price (which can provide capital growth). 

Investing in property and certain asset classes often involves large sums of money. Managed funds generally have a minimum investment of $1,000.