With cash rates still near all time lows and global market volatility still high, balancing risk and return in your investment portfolio may feel challenging. If you’d like to invest beyond your superannuation, start with these three tips for investors.
If you are just starting out on your wealth creation journey, you may be more comfortable taking on higher risk to potentially achieve stronger returns down the track. Growth assets like shares or property mixed with defensive assets like fixed income might help you achieve a better long-term result.
As you get closer to retirement, your goals may focus more on predictable income and protecting your wealth.
Almost every type of investment comes with some level of risk, so it's essential to understand your attitude to investing. As a rule of thumb, the higher the risk the greater the potential returns – but risky investments rarely come with a guarantee. Your investment profile might be 'aggressive' (prepared to accept a higher risk of capital loss to achieve higher returns) or more 'conservative' (prepared to accept lower returns if it protects the value of your capital).
If you're not sure which end of the spectrum you fall, ask yourself whether you'd lose sleep over a downturn in the value of your investment.
It’s sensible to manage risk by spreading your money between different asset classes, such as shares and property or cash or fixed interest. This can reduce the volatility within your portfolio, and the risk of a large drop due to any market downturn.
A diversified portfolio can also provide you with different sources of income to make cash flow a little more predictable, and protect you from any unexpected tax or legislative changes that may impact a specific asset class.
As it can often take time to sell certain investments (such as property), if you need to sell quickly due to unplanned expenses or lifestyle changes you may lose capital. That’s why astute investors often keep an emergency fund of highly liquid investments.
Creating a balanced portfolio can be a challenge when you have a limited amount to invest. Look for investment opportunities with low entry costs and conditions like term deposits to get you started – as you build your capital you’ll have more funds available to put towards larger assets with higher costs of entry.
If your ready to enter the share market but uncertain what company to invest in, consider an ETF that tracks a sector, commodity or even the entire market - there are many options available.
Everybody's circumstances and financial goals are different, and will change over time. So an investment strategy that suits one investor won't necessarily suit another.
When deciding which assets are best for you, it's important to consider your life stage, the amount of money you have to invest, how long you plan to stay invested and what is your tolerance for risk.
It’s comforting to know that Australia has an extremely well-regulated investment market, with a wide variety of investment options to choose from.
Lower risk investments include term deposits, cash management or fixed interest accounts and investment grade corporate bonds. Higher risk investments include Australian and international shares, and hybrids and high-yield bonds.
Investing any extra cash you have now can set you up for a more comfortable future. Just make sure you understand exactly what you’re investing in, and any risks involved.
Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should also obtain and consider the relevant Product Disclosure Statement and terms and conditions before you make a decision about any financial product. Investors are advised to obtain independent legal, financial, and taxation advice prior to investing. Past performance is not an indicator of future performance.