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Investing can be a productive way to grow your wealth and help safeguard your future.

Whether you’re looking at existing investments or planning to invest for the first time, here are some key points you may want to consider.

What is investing?

Let’s start with a quick explanation of investing for anyone who’s a beginner. An investment is an asset (like property, a share in a company or even your superannuation) that you buy with the goal of it growing in value or providing income.  

MoneySmart’s guide to practical investing has lots of extra information about investing for beginners and it may be a good resource to save or print to keep with your financial records.

Common investments

Let’s talk about different investment types. The number and diversity of investment opportunities seems huge and can be overwhelming. So we’ll keep it fairly simple by sharing the most common types:

  • Cash

If you have money in a bank account, savings account or term deposit then you’re already a cash investor. The returns on cash investments come in the form of interest, and interest rates will vary widely. It’s a very common investment and is considered extremely low risk.

  • Managed Funds

Managed funds are where your money is pooled with like-minded investors and then invested in a variety of asset types, for example shares, property, cash and fixed interest. This may be one of the most commonly held investments, given that the vast majority of superannuation and pension plans will invest through managed funds; however, they can also be personally held. Managed funds offer high levels of diversification and generally you will also have access to fund managers who would normally be out of reach for individual investors.

  • Fixed interest

These investments may include government or corporate bonds, debentures and income securities. They offer a regular interest rate for a set time frame but can also go up and down in value. At the end of the investment’s term the principal is repaid to you. These types of investments are not normally available for you to purchase directly.

  • Real estate

Property investing can include buying and renting out houses, units, or other residential and commercial buildings. Property investors may aim to generate positive cashflow in the short term through rent and/or for property values to increase over time. It’s a common long-term investment in Australia but is not without risk.

  • Shares

You become one of many owners in a business when you directly invest in shares. Shares can be complicated to understand because their value is influenced by many factors. Much like property, there are risks associated with shares, which is why it can be smart to use a professional advisor to assist you with your share strategy. Shares can return an annual income through dividends and have the potential for long-term capital growth.

What you must know

Across all of these different investments, there are a few golden rules to keep in mind.

  • Understand the risks

Opportunities always have risks. Understanding what risk means to you and the risks that come with investing is very important.

  • Set clear goals

If you know why you are investing and what you hope to achieve, it’s going to be easier to measure your progress. Having realistic goals is a big part of this.

  • Strive for balance

Ever heard the expression about putting all your eggs in one basket? Diversifying your investments – having them in different areas – is generally considered to be a good idea to help your portfolio withstand downturns in particular markets.

  • Keep costs down

You’ll never have any control over markets or how they change every day or year to year. However, you can take care to see how much investments cost in fees and what tax implications there are.

  • Keep a cool head

We’re all human. As much as we think we make decisions with our head, our heart may drive us. Learning how to take the emotion out of investment decisions and avoiding knee-jerk reactions, will help you look at investments as a long-term approach.

If you’re looking for an expert to help you set up an investment plan, it may be worth speaking to a financial adviser. Advisers, like those in our financial planning team here at Newcastle Permanent, can create a paid-for statement of advice that is tailored to your investment needs and goals.

This article is intended to provide general information of an educational nature only. It does not have regard to your objectives, financial situation or needs and must not be relied upon as financial product advice. Before you act on this information, you should consider whether it is appropriate for your circumstances. Information in this article is current as at the date of publication. Applications subject to credit approval and fees and charges are payable. Terms and conditions apply and are available on request.

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