Rachel O’Connor Director of Flourix Wealth and Betsy Westcott have helped by putting their top tips together for us! Thanks Rach (we are sending you a telepathic high five).
1. Write, Aim, and Fire at your Goals
The point of investing is to get you to your goals. It’s not about talking up the next hot tech stock over brunch with your friends, simply beating the share market for fun, or buying property so you can add ‘investor’ to your Linkedin profile. It’s all about YOU, YOUR goals and getting YOU there to live the life you chose.
So the first thing you need to do is write down your goals and (hot tip alert!) be as specific as possible. Then you aim at your goals. Divide them up into short term (1-3 years), medium term (4-6 years) and long term (7+ years). Identifying the timeframe is going to determine the kinds of investments you will make and therefore the results you achieve. You’re now ready to fire!
2. Tap the magic of Compounding Returns
Compounding Returns (aka Compound interest) is one ass you do want to tap! ‘Compounding’ is what is happening when your money is making money. Say what?! It happens when you invest an initial amount, it earns a return (aka interest) then you grow it over and over by reinvesting the intial amount PLUS the return again and again. As ol’ mate Albert Einstein put it ‘compound interest is the eight wonder of the world. (S)he who understands it, earns it. (S)he who doesn’t, pays it’. In order to make compounding returns work for you, you need to start as soon as possible and contribute to your investments as consistently over the long term.
3. Assets, Assets, Assets plus the relationship between Risk & Returns.
I don’t know about you, ladies, but our favourite kind of assets are the ones I see in my online trading account. 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 is the risk of losing money. Cash and bonds are considered ‘defensive’ asset classes because they ‘defend’ your portfolio from losses. The returns will be lower with these but, then again, so is the risk.
4. Risk Profile & Asset Allocation
Kinda like a tinder profile but this one helps you find your perfect investment match! Your ‘risk profile’ balances the return you wish to achieve, the amount of risk you are willing to take, against your goals and investment timeframe. Risk profiles have names such as conservative, balanced and growth (sexy, we know!) 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.
If variety is the spice of life, then diversification is the spice of investing! Yum. Diversification, aka not putting all of your eggs in one basket, is one of the best ways you can manage and mitigate the risk of volatile returns. It involves spreading your investment portfolio between 10s, 100s or 1000s of individual investments. By doing so, you’re more likely to achieve consistent returns year on year than if you were to concentrate your investment to just one of two investments. To diversify your portfolio, spread your investment across different 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.