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Time to get started on that investment plan

We're all looking forward to a bit of down-time over the holidays. It's a chance to relax, unwind - and get started on that investment plan you've been putting off.
By · 15 Dec 2021
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15 Dec 2021 · 5 min read
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Like most things in life, taking the first step as an investor can be dauting. Once you’re up and running you’ll soon discover how easy it is to invest regularly and steadily grow a portfolio.

I’m not saying every investment you buy into will be a winner. Life’s not that predictable. But a planned approach can help you put together a portfolio that is all about you – reflecting your goals, needs and life stage.

The 3 must-dos

Rather than jumping into an investment or following a hot tip from a friend, take a moment to follow three key steps. They will help you narrow down your choice of investments.

1. Understand how you feel about risk

Let’s make this clear upfront. All investments come with a degree of risk. So it’s not something to avoid. Rather it’s something to manage.

Be honest with yourself about how comfortable you are with risk. This matters for two reasons.

First, it’s easy to assume you’re happy with an edgy kind of portfolio. But you’re putting money on the table, and there’s nothing like a market correction to discover you how you really feel about risk.

Secondly, if you want less risk, be prepared to accept lower returns. Taking on more risk means being rewarded with higher returns. It’s that simple.

2. Know what you’re aiming for

This is all about knowing what you want from your investments. Are you hoping to earn extra income? Are you saving for retirement? Or do you have a clear goal in mind, such as buying a home or giving the kids a quality education?

This matters because some investments, like say, a term deposit can dish up reliable, regular income while preserving the value of your capital. But the returns are likely to be low.

Other investments, such as shares and exchange traded funds, can pay regular income with the potential for capital growth over time. The catch is that if sharemarkets fall, the value of your portfolio could go backwards – and this can happen just when you need to access the money.

3. Be prepared to diversify

By diversifying your portfolio – in other words spreading your money across a variety of investments, you can dial down risk, and still enjoy healthy returns over time.

The way you should diversify is a very personal choice. There’s no one-size-fits-all portfolio that works for everyone.

I will say though, if you’re interested in investing in the sharemarket but you’re confused about which shares to buy, exchange traded funds (ETFs) can be a simple option. You’ll get instant access to a whole basket of shares in return for a super-low annual management fee, often less than 0.5%.

Happily, you can build a portfolio gradually. So you can mix and match your investments as you go. Just watch out for fees that can apply when you add to your investments. Brokerage fees for instance can pack a disproportionate punch on a portfolio with a low value.

The 5 must-knows

Okay, by now you should have a better idea of what to invest in. You’re ready to get started! But please, check out my must-knows to help finetune your investment plan.

1. Make your portfolio personal

I can’t stress enough that your portfolio should reflect you, your goals and your risk appetite.

I know some trading platforms offer ‘copycat portfolios’ where your portfolio mirrors that of someone else. But I have real concerns about this. You wouldn’t copy a complete stranger’s home, career or family, so why try to replicate their investment portfolio?

2. Stick to your plan, not your emotions

As a long term investor you won’t always enjoy smooth sailing. The last two years of the pandemic have made that pretty clear!

But no matter what happens in asset markets, if your goals haven’t changed, there should be no need for knee jerk reactions to alter your portfolio. Yes, it can be hard to stick to a plan when markets hit a downturn, but if you find it especially challenging, just tune out from the noise and let your portfolio work its way through the downturn and onto the recovery phase that inevitably follows.

3. Embrace growth assets

Growth assets like property, shares and ETFs that invest in shares, will keep the value of your portfolio ahead of inflation over time. Yes, growth assets mean taking on more risk, but the reward is the potential for higher, tax-friendly returns in the long run.

4. Remember, yesterday’s rooster can be tomorrow’s feather duster

It’s amazing how last year’s top performing investments can be next year’s also-ran. Instead of constantly chasing the latest ‘winners’, focus on quality investments that tick all the boxes for being right for you.

5. Ask questions

Never be embarrassed about asking questions if you’re unsure about an investment. Always understand the true nature of risk in any investment before you do anything. If more people did this, I suspect fewer Australians would fall prey to investment scams each year.

As this is my last column for 2021, I’d like to wish all my readers a safe and happy Christmas. I’ll be back with more money insights in 2022!

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Effie Zahos
Effie Zahos
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