You don’t have to be a financial expert to invest; after all, anyone who has superannuation is already an investor. But if you’d like to maximise your returns, then a little bit of homework and professional advice can make a lot of difference.
There are some fundamental investment principles to be aware of as you consider your strategy.
You would have heard the term ‘asset classes’. These are generally types of investments considered to have a similar level of risk and expected returns.
The four basic asset classes are:
Note: One thing to remember about fixed interest and cash investments is that they’re not completely risk free. Make sure you know who you’re giving your money to. Licensed banks, building societies, credit unions, Super funds and life insurance companies are all subject to special regulations, which may not apply to some other organisations.
If you’re thinking about investing, here are 7 tips to help you along the way:
|Knowing what's right for you|
One of the keys to investing is finding the right investments for you. After all, you shouldn't be losing sleep worrying about money.
Working with a professional Financial Planner can help you determine the strategies that suit you. Some things to consider include:
All are important but one deserves further explanation.
Financial Planners often refer to you needing to understand your ‘risk profile’ or ‘risk tolerance’, and it’s a key to any investment strategy.
This isn’t just your personal attitude to risk, although knowing how you’d react if the value of your investments fell by 20% in any given year is important.
If you panic and sell, then you’ve made a 20% loss. However, some growth assets are volatile and losses can be expected in any given year. Time and a sound strategy will help you ride out any short-term fluctuations, and enjoy long-term results.
Time is vital
The closer you are to retirement, the less risk you may be able to afford to take. After all, one day you’ll receive your last pay check.
The following are by no means hard and fast rules but they are sensible guidelines.
|Strategies explained simply|
Diversification is the strategy of putting your money into a range of different investments with an aim to reduce overall risk. You can do this a number of ways.
Dollar cost averaging
This strategy can help to reduce the chance that you pick an unlucky month and invest right at the peak of the market. Instead, you ignore market fluctuations and invest a similar amount each period (say monthly) regardless of market movements.
As couples in Australia are taxed individually, income splitting is often used for tax benefits where the individuals are in different tax brackets. The overall tax burden for the couple may be reduced if investments are held in the name of the person on the lower tax rate.
This is simply borrowing to invest and can be a powerful investment tool. By adding borrowed money to your own funds, you increase the amount you’ve invested. This can multiply the returns if your portfolio value increases, but it can also multiply the effect of losses if the portfolio value decreases.
This is when the costs of borrowing (interest and fees) are greater than the income paid by your investment. Depending on your circumstances, this can lead to tax advantages because in most cases, the costs of borrowing and holding the asset are tax deductible. But it still begs the question; why make a loss?
That’s because your goal is that the asset will grow in value over time and that growth will outstrip the losses you have experienced. If you’re investing for your retirement and using a negative gearing strategy make sure you have time for the asset to grow. If not, you may be better with a different strategy.
Also remember to consider Capital Gains Tax. This will vary based on a range of issues including:
You can find out more through the ATO.
Borrowing against the equity in your home
This gives you extra funds to invest and depending on the type of mortgage (say a redraw or line of credit facility) you may be able to access funds at the same rate as your home loan.
The money you borrow can be used to buy shares or managed funds. Your investment portfolio can be used as security for your loan, just like you’d use your property as security if you were investing in property.
|How we can help|
Developing your own personal investment strategy may be something you want to do for yourself (if you have the necessary knowledge and time) or you may want help from an expert.
An ANZ Financial Planner can help you establish the right diversified strategy, taking into account your time frame (as examined above), tolerance to risk and available funds. Your first appointment is complimentary and without obligation.
ANZ Home and Investment Loans: an ANZ Home Loan specialist can help you explore your options and find the right solution to suit your needs. And remember, ANZ is Australia’s most awarded home lender*. Contact us today.
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The information provided is general information only and does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you. Before making any decision to acquire, hold or sell any financial product, ANZ strongly recommends that you seek financial planning and/or tax advice and read ANZ’s Financial Services Guide (PDF 104kB), the relevant Product Disclosure Statement and/or Terms and Conditions. Terms and conditions are available on application. Fees and charges apply.
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