5 things to consider before investing

Key takeaways

  • One of the main things to consider before investing is having a plan - consider your investment goals including when and how you want to achieve them
  • Identify the timeframe you're giving yourself to build your financial goals and how much risk you’re prepared to take on 
  • There are many ways you can go about investing your money including through a managed investment fund.
 

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 some things to consider before investing.

 

Plan 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.

Review 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.

Seek help from a professional

 

If you value the experience of experts in other aspects of your life, don't discount it when it comes to managing your life savings.

A financial adviser is not just someone who helps with investments. Their job is to help you with every aspect of your financial life—savings, insurance, tax, debt—while keeping you on track to achieve your goals.

More importantly, they can answer questions like:

  • What age can I stop working and retire?
  • What strategies can I use to build my wealth?
  • How can I ensure my wealth is transferred to my children?

If your to-do list is endless and you never quite have time to tackle your personal finances, a financial adviser may help to set you on the right track.

 

Start the conversation to see how a financial adviser can help you.

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.

Diversification

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.

 

Investigate 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.

 

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.


1https://www.cnbc.com/2017/05/01/7-insights-from-legendary-investor-warren-buffett.html

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.