Rachel O’Connor Director of Flourix Wealth has put her top tips together for us! Thanks Rach (we are sending you a long distance high five).
1. Write down your goals and divide them up into short term (1-3 years), medium term (4-6 years) and long term (7+ years).
The point of investing is to get you to your goals. It’s not about beating the share market, ‘buying high selling low’, the next hot tech stock or anything else like that. It’s all about you, your goals and getting you there. So the first thing you need to do is write down your goals and be as specific as possible. This is going to determine the kinds of investments you will make and therefore the results you achieve.
2. Compounding Returns
‘Compounding’ is what is happening when your money is making money. It happens when you take a number and grow it over and over by a percentage. In order to make compounding work for you, you need to start as soon as possible and contribute to your investments as consistently as you can manage over the long term.
3. Assets classes, Risk & Return
An ‘asset class’ is a group of the same type of investment. The main asset classes are cash, bonds, property and shares. This is what you can invest in. Property and shares are considered ‘growth’ asset classes because they will grow your investment portfolio over time. The returns will be higher with these asset classes, but so will the risks. Cash and bonds are considered ‘defensive’ asset classes because they ‘defend’ your portfolio from losses. The returns will be lower with these, and the risk will also be lower.
4. Risk Profile & Asset Allocation
Your ‘risk profile’ balances the return you wish to achieve, the amount of risk you are willing to take, and your goals and investment timeframe. Risk profiles have names such as conservative, balanced and growth and will determine how much of your portfolio is invested in growth and defensive investments. Your asset allocation is an extension of your risk profile and will outline how much of your portfolio is invested in cash, bonds, property and shares.
Diversification, aka not putting all of your eggs in one basket, is one of the best ways you can manage and mitigate risk. It involves spreading your investment portfolio between 100s or 1000s of individual investments. To diversify your portfolio invest in many asset classes, regions, sectors and companies.
This is general information only and does not take into consideration your specific needs. You should look at your own financial position, objectives and requirements and seek financial advice before making any decisions.