Investing your money may be one of the most effective ways to help you build long-term wealth.
While it can seem overwhelming at times, given the breadth of options available, the truth is you don't need to be a financial expert to be successful at it. But as Warren Buffet says: "Risk comes from not knowing what you're doing,"1 so understanding the basics is important.
To help better prepare you and potentially help to reduce your risk, here are five things to consider before investing.
Learn more about investing your wealth or speak to a financial adviser.
- Consider your investment strategy
One of the main things to consider before investing is to have a plan. This helps you put into perspective not only your investment goals, but when and how you want to achieve them. It can also help to remove the likelihood of emotions influencing your investment decisions.
There's no denying that the nature of investing can be emotional. There are times where you may feel tempted to change your investment strategy because an area of your portfolio is not doing well, or you received recent news the market is going to plummet.
While these events may cause you to react quickly, such as selling off your assets, it's important to take a moment to consider your investment strategy. If your approach is intended to be a long-term plan, making decisions based on short-term market fluctuations, may greatly affect what you set out to achieve.
- Consider your timeframe and risk tolerance
It's important to consider how much time you're giving yourself to build towards your financial goal and how much risk you’re prepared to take on to get there.
For example, an investment plan for retirement may look very different to someone who is much older or younger. If you're looking to access your money in a shorter time frame, remaining invested through ups and downs in the market may be unlikely, so a less risky investment approach may work to your favour.
- Consider where to invest your money
You may choose to divvy up your money across a variety of asset classes such as shares, cash and bonds, or you may choose to invest your money in a single asset class, such as a residential property.
One of the main advantages of investing in different asset classes, is the ability to diversify your risk. This means, if one of your investments doesn't perform well, your losses may not be as significant as if you only invest in the one asset class, as your other investments may help to level it out. On the flip side, it does take more effort as you'll need to remain up to date across a variety of markets.
Consider the company not just share price
If you're investing in shares, it's also important to look beyond the stock price and consider the company you're buying into. If it's values and goals don’t sit well with you, then it may not be the best investment option for you.
- Consider how to invest your money
There are many ways you can go about investing your money depending on how confident you feel and whether you'd prefer to take a more passive or active approach to managing your money.
Managed investment funds
Managed investment funds offer fund managers that manage your investment portfolio by buying and selling shares on your behalf. This provides a more hands-off alternative so you don't have to worry about the day-to-day management of your portfolio. If you do invest in a managed investment fund, you'll be required to pay a range of fees, which are usually set out in the relevant Product Disclosure Statement (PDS).
- Research the market
It's critical to take the time to research what factors may have an impact on your investments so you can make informed decisions.
Understanding what's going on in the market, domestically and globally, is important as it may have an impact on your investments. This can include things such as growth, unemployment rates, interest rates and inflation and even political events.
Consider speaking to a financial adviser
You can work with a financial adviser to develop an investment plan based on what you want to achieve from your investment portfolio. They will then be able to help you manage your investments and advise you about where is best for you to put your money. You will be required to pay fees for these services.
Bottom line: investing your money can be an effective way to help you build long-term wealth. Sticking to a plan, understanding your timeframe and risk tolerance, and being in-the-know about what’s happening in the market, may also help to reduce your risk and set you up for success.
Important information and disclaimer
This article has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’), registered office at 105 –153 Miller St North Sydney NSW 2060. GWMAS is a member of the National Australia Bank Limited group of companies (“NAB Group”). Any advice provided in this article is of a general nature only and does not take into account your personal objectives, financial situation or needs. Please seek personal financial, tax and/or legal advice prior to acting on this information. If any financial products are referred to in this article, you should consider the relevant Product Disclosure Statement (PDS) or other disclosure material before making an investment decision in relation to that financial product. Information in this article is current as at 10 February 2020. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way and no liability is accepted by GWMAS nor any member of the NAB Group, nor any of their, directors, agents or employees for any loss arising from reliance on this article. Any opinions expressed constitute our views at the time of issue and are subject to change. Any tax information provided in this article is intended as a guide only. Any investment returns referred to in this article are hypothetical examples for illustrative purposes only and do not reflect the historical or future returns of any specific financial products.