With the market losing substantial amounts in values in a historically short period, this presents threats to current shareholders and a possibility of opportunities to new investors. Making an investment is a difficult and complicated process.
Therefore, we have created a simple step-by-step guide to lead your decision making with an investment plan.
Step 1: Review Finances
- List current assets (what you own) including superannuation, properties, savings, vehicles, jewellery, home contents and any other investments
- Write down your debts (what you owe) including any loans, HECS, credit card debt, car loan debt
- List your income and monthly living expenses (e.g. phone, utility, food etc)
Step 2: Set goals
Set your goals into short term (for the next 2 years), medium-term (3 up to 5 years) and long term (5+ years). Set the exact amount of money needed for each goal and when you want to reach it.
Step 3: Understanding investment risks and your risk tolerance
Naturally, the higher the potential return on the investment, the higher the risk.
- First – understand the type of risks: interest rate risk, market risk, currency risk, liquidity risk, timing risk, inflation risk or gearing risk
- Second – risk tolerance: How much risk are you comfortable with?
Step 4: Investment options
When deciding on various options, consider the below:
- What is the anticipated return on investment and is it purely driven by income from the investment or capital growth over time?
- How much time will it take to access your cash in case you sell the investment?
- Cost of buying and exiting – are there any legal or brokerage costs involved?
- How long do you need to retain the investment to get the expected return?
- What are the types of risk involved and do they fall within your tolerance?
- What are the tax implications on your earnings from the investment?
Step 5: Build your portfolio
The structure of the portfolio will depend on financial goals, time frames along with risk tolerance. It is important to diversify your portfolio across different types of assets and within each asset. This protects against losing a huge amount of value if the investment falls. E.g. When buying real estate, consider interstate, type of property (apartment, townhouse or a new home) and perhaps even type of property (commercial v residential)
Step 6: Monitoring investments
One of the most important steps is to analyse the performance of your investments and taking corrective action if necessary. Check whether you are on track to reach all financial goals.
If these tasks are too daunting or time consuming for you, contact us and we will help you manage your finances with our experts to reduce the stress and complications on investments!