Investing can be one of the most powerful ways to build long-term wealth, create financial security and work towards the lifestyle you want in the future.
But investing successfully is not about chasing hot tips, reacting to headlines or trying to predict exactly what markets will do next. It is about understanding the fundamentals, having a clear strategy and making informed decisions over time.
For many investors, quality financial advice can make an enormous difference. An ongoing relationship with a Financial Adviser can help ensure your investment strategy continues to reflect your goals, circumstances and changing needs.
Here are seven fundamentals every investor should understand.
- Know what you are investing forBefore choosing investments, start with your goals.
Are you building wealth for retirement? Saving for a property? Creating an additional income stream? Helping your children? Or simply wanting your savings to work harder?
Your goals, timeframe and financial position should help shape your investment strategy. A Financial Adviser can help turn broad ambitions into a structured and achievable plan.
- Understand risk and returnEvery investment carries some level of risk.
Generally, investments with greater potential for long-term growth may also experience greater fluctuations along the way.
Shares, for example, can experience significant short-term volatility, while cash may be more stable but generally offers lower long-term growth potential.
Understanding the level of risk you are comfortable with is essential to building a portfolio you can remain committed to.
- Diversify your investmentsDiversification means spreading your money across a range of investments rather than relying too heavily on one company, sector or asset class.
A diversified portfolio may include Australian shares, international shares, property, fixed interest, cash and other assets.
Diversification cannot remove investment risk, but it may reduce the impact of poor performance in any one area.
- Think long termInvestment markets will rise and fall.
Periods of uncertainty, volatility and negative returns are a normal part of investing. The challenge is avoiding emotional decisions when markets become unsettled.
Selling after markets have fallen can potentially lock in losses, while waiting for the “perfect” time to invest may mean missing periods of recovery.
A sound long-term strategy can help keep short-term market movements in perspective.
- Understand the power of compoundingCompounding occurs when your investment returns begin generating additional returns over time.
The longer your money remains invested, the greater the potential impact of compounding.
Regular contributions can also play an important role. Investing smaller amounts consistently over many years may help build meaningful wealth without requiring a large initial investment.
Time and consistency can be incredibly powerful.
- Review and rebalanceYour investment strategy should not simply be established and forgotten.
Your income, family circumstances, career, goals and financial priorities may all change over time. Investment markets and economic conditions also change.
Regular portfolio reviews can identify whether your investments remain aligned with your objectives and whether adjustments or rebalancing may be appropriate.
- Build an ongoing relationship with your Financial AdviserOne of the most important fundamentals of investing is recognising that financial planning is an ongoing process.
A Financial Adviser can provide much more than an initial investment recommendation.
They can help you understand your investments, assess opportunities and risks, review your progress and adjust your strategy as your circumstances change.
Importantly, an adviser can also provide valuable perspective during periods of market volatility, when emotion can easily influence investment decisions.
The best investment strategy is not necessarily the most complicated. It is one that reflects your goals, your tolerance for risk and your financial circumstances — and one you can stay committed to over the long term.
Understanding the fundamentals is the first step.
Combining that knowledge with quality advice and an ongoing relationship with a trusted Financial Adviser can help you make more informed decisions and keep your financial future moving in the right direction.
If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.
This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.
(Feedsy Exclusive)
