Quick start to your Investment Plan
Planning is the key to successful investing. Having a plan in place will help you find investments that fit your investment time frame and risk tolerance, helping you reach your financial goals faster.
6 steps to get you ready for your first investment.
1. Review your finances
To prepare for investing, it is important to assess your financial situation. This involves creating a list of your debts and assets, including super, home, savings, and other investments.
A net worth calculator can assist in this process. Additionally, you should record your income and expenses using a budget planner to determine how much money you can allocate towards investing on a regular basis.
2. Set your financial goals
To choose the right investment for your needs, you should first write down your financial goals, including the amount of money you need and the timeframe for achieving them. These goals should be categorized into short-term (0 to 2 years), medium-term (3 to 5 years), and long-term (5 years or more) goals. Categorizing your goals will help you select the appropriate investment strategy to achieve each one.
3. Understand investment risks
The term "investment risk" refers to the possibility of losing some or all of the money you have invested, either due to a decrease in the value of your investment or because it did not perform as anticipated. Some risks includes Interest rate risk, Market risk, Sector risk, Currency risk, Liquidity risk and more.
In investing, the level of risk generally correlates with the expected return. Higher returns come with higher risks, while lower returns are associated with lower risks. Investments with lower risk tend to have more stable returns and less chance of loss. For instance, government bonds are low-risk investments, while shares are considered high-risk.
4. Research your investment options
When selecting investments, several factors need to be considered. These includes the following:
- Expected return of the investment, whether the returns come from income or capital growth;
- The time frame for investment;
- The level of risk associated with the investment;
- The liquidity of the investment;
- The cost of buying and selling the investment;
- The tax implications of earning income and capital gains from the investment.
5. Build your portfolio
When structuring your investment portfolio, consider your financial goals, investment timeframe, and risk tolerance. For short-term goals, low-risk investments such as savings accounts, term deposits, and government bonds are ideal. For long-term goals, higher return investments like shares and property may be more suitable, despite their higher risk. It's important to diversify your portfolio across different asset classes and within each asset class to mitigate the risk of losing too much if the value of one investment declines.
6. Monitor your Investment
Regularly reviewing your investments is crucial to ensure that they are meeting your expectations and to evaluate your progress in achieving your financial objectives.
Source: https://moneysmart.gov.au/how-to-invest/develop-an-investing-plan