To invest well, you need to find investments that fit your financial goals, investing time frame and risk tolerance.
Get an overview of the different types of investments so you can find the right ones to reach your financial goals.
Types of investments and returns
Investments can be classified as defensive or growth investments.
Defensive investments are lower risk investments. They aim to provide income and protect the capital invested. Defensive investments include cash and fixed interest investments.
They’re typically used to:
Meet short-term financial goals (up to two years).
Diversify a portfolio.
Risk, return and investing time frame
Growth investments are higher risk and offer a higher potential return compared to defensive investments. They aim to give capital growth and some provide income (for example, dividends for shares or rent for property). But, price of growth investments can be volatile over short periods of time.
Growth investments are typically used to:
Earn a higher rate of return (but this comes with higher risk).
Meet longer term financial goals, five years or more.
Growth investments include shares, property and alternative investments.
|Investment||Characteristics||Risk, return and investing time frame|
How to choose your investments
Before you invest, make sure you research your investment to understand:
How the investment works.
How it generates a return and the type of return expected (capital gain or income).
The risks involved for the investment.
The fees and charges for buying, holding and selling the investment.
How long you should invest to receive the expected return.
Legal and tax implications of the investment.
How the investment will contribute to your diversified portfolio.
You can find this information in the product disclosure statement (PDS)
Decide how you’ll invest
When it comes to investing you need to decide whether you’ll:
do it yourself, or
pay a professional to do it for you
Both options have their pros and cons — and you can, of course, do both.
Buy and sell investments yourself
The advantage of investing yourself is that you’re in control of all the decisions. It can also be cheaper than paying someone to invest your money. The risk is that you may overrate your expertise and may not diversify.
If you invest directly, it’s important to plan and put in the time to research your investments. You should also keep track of how they’re performing.
Use a professional investment manager
If you invest in a managed fund, some managed accounts, exchange-traded fund (ETF) or a listed investment company (LIC) your money is pooled with other investors. A professional investment manager then buys and sells investments on your behalf.
When you use a professional, you benefit from their skills and knowledge to make investment decisions. But you have to pay fees for this service. These can include management fees, administration fees and entry and exit fees.
See managed funds and ETFs to learn more about these investments.
Investing with a financial adviser
A financial adviser can help you set your financial goals, understand your risk tolerance and find the right investments. See financial advice for more information.
Invest through your super
If your goal is to save for retirement, contributing more to super is generally the best way to do this. See super investment options for more detail.
Please contact us on 0438 334 334 if you seek further assistance on this topic.
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at MoneySmart
Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
Important Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.