Investing might seem like it’s only for rich people, but it’s really just a flash word for what to do with your savings to make your money grow. This could be anything from putting it in a bank account to buying shares or joining a workplace retirement savings scheme.
If you’re thinking about investing, it’s important to understand some basic principles so you can make sure the investments you choose are right for you. Some investments earn more than others. Some are riskier than others. Some are good for long-term savings but aren’t so good if you’re saving for short-term goals such as an overseas trip or deposit on your first home.
Good investors don’t put all their eggs in one basket. They develop a diversified portfolio of investments. This means they have investments which are spread across the four main ”asset types”:
- Short-term deposits: savings accounts, term deposits, etc — often called ”cash”.
- Bonds: you lend a government or company some money and they promise to repay it after a certain time, at a certain interest rate.
- Property: for many people, their home is their biggest investment, but ”property” can include rentals, a bach or commercial property.
- Shares: essentially, you buy a small stake in a company and may be entitled to receive regular dividends.
There are two main ways of getting into these investments. You can take the do-it-yourself route and invest directly, by choosing and buying the investments yourself. Or you can invest in a managed fund where you pay fund managers to invest your money for you.
So how do you decide what type of investment to go for? Try following these four steps:
Step one
Work out your ”investment profile” — what you want out of your investment and how much risk you feel comfortable with.
Step two
Find the types of products or schemes that suit your profile.
Step three
Get good quality financial advice or information. You can get investment advice at financial institutions like banks or brokers or from an independent adviser.