ANZ

Investment Strategies

When building an investment portfolio, you can use different strategies depending on your needs. Some strategies help you to increase your investment more quickly, while others may be more tax effective or can reduce the impact of market fluctuations.

The earlier you start making regular contributions, the better off you may be. Not only will you have more time to accumulate wealth, you may benefit from compound returns on your earlier investments. This means you’ll not only earn interest on the money you contribute, but also on the cumulative interest earned on those funds; ie interest on interest.

• Compounding
• Dollar Cost Averaging
• Diversification

Compounding (interest on interest)

Some people think that the best way to avoid losing money on investments is to maximise their returns by market timing. This strategy works by investing before the market goes up and selling before it drops. But few investors can predict when and how far the investment markets will rise and fall.

Time in the market is generally more important than market timing, a point best illustrated by the use of compound returns. This means you earn interest not only on the initial amount invested, but also on the cumulative interest that is earned over time. The longer you compound, the more your wealth grows. Compounding is most powerful if you start early and make regular contributions.

	Value of $10,000 returning 8% p.a. for 25 years

This savings amount is an illustration only and is not a prediction or estimate of the actual savings you can achieve.

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Dollar cost averaging (invest regularly over time)

Dollar cost averaging means investing a fixed sum of money over regular intervals, regardless of which way the investment markets are heading. By doing this, you can purchase units at an average cost.

This strategy removes guesswork about when you should buy and sell. Not even the best investment managers can pick the highs and lows of the investment markets all the time. Dollar cost averaging is a disciplined way of making regular investments.

	Dollar cost averaging (invest regularly over time)

Investing regularly over time

		Investor				Price Paid for Units				Total Units Allocated				Value of units at month 10				Increase in value of investments
		Debbie				89c - $1.02				106,238				$104,113				$4,113
		Eddie				$1.02				98,039				$96,078				-$3,922

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Diversification

Many people are discouraged from starting to invest because markets are risky. However, you can reduce your risk by investing in different types of assets. Diversification means spreading your investments across asset classes. This helps to smooth out the impact of market fluctuations on your return. Managed funds are one of the easiest ways to diversify. Invest in a managed fund that invests mostly in Australian shares, international shares, property, bonds and cash.