Successful Investing for the future
Volatility in the Australian and International markets shouldnt be a reason not to invest but an opportunity to buy into the market when it is down, says John Osborne.
Being armed with the right knowledge when investing helps you to make the right decisions. Here are a few tips to start with:
1. Be informed
Increase your knowledge of investing. Your financial planner will assist in this regard by keeping you informed on investments and what is happening on local and world markets.
2. Follow a time frame
An important thing to remember when investing is to follow a time frame. You may want to save $100 per month for 10 years. Or you may decide to invest $10,000 and leave it for five or 10 years. It is important that you are realistic about the length of time you plan to invest.
When investing into shares, managed funds or property, you need to have a five to 10 year time frame in mind.
3. Invest on a regular basis via a savings plan
For some unknown reason, many investors believe the only way you can invest is to become a trader. There are many “share” programs on the market encouraging this form of investing. This may suit the retiree who has time on his hands, but the average person cannot afford the time to do this.
As an alternative, consider investing regular amounts at regular intervals (ie monthly). Investing in this way means you will automatically buy more for your money when the market is down. When the market starts to rise again, your investment will be worth more than you paid for it. This method of investing is known as “dollar cost averaging”.
4. View market corrections as buying opportunities
Sharemarket corrections occur generally because the market is overvalued. The correction of October 1987 of 10.9 per cent in the Australian sharemarket was a result of factors such as the downturn in the US market. When the sharemarket falls like this, it provides opportunities to buy into the market at bargain prices, knowing the market will go up again.
“When investing into shares, managed funds or property, you need to have a five to 10 year time frame in mind.”
5. Know your risk profile
Understand the level of risk you are comfortable with. Some people with a low risk profile are cautious and may prefer to invest in capital guaranteed or capital stable investments. They forego the potential to earn a higher return with the knowledge that the value of their money will not fall. You need to understand that this comes at a price. Others may be willing to accept and understand volatility, knowing that they can earn a higher return over a longer period. It depends on your time horizon and understanding of investment principles. The longer you plan to invest, the lower the risk of investing will become.
6. Diversify your investment
Diversifying your portfolio of investments is a vital strategy to reduce the overall risk of your investments. Invest in a mix of assets like shares, property, cash and fixed interest securities. Spread your investments between different portfolio managers, so you are not relying on the performance of one fund manager. Take advantage of fund managers investing in international markets such as the US and Europe. The Australian sharemarket only represents two per cent of the total world sharemarkets. If investing in direct shares, spread your investment over a number of different sectors, eg banks, telecommunications, mining and retail.
7. Consider gearing
Look at gearing your investment. That is borrowing against your portfolio of investments. This will help to grow your investment faster. Always remember, seek advice first from your financial planner.
8. Consider property to complement your share portfolio
Property may be a suitable defensive investment in times of market volatility. Property investment either direct, or through a property trust, can provide a good return over the long term and can be very tax effective. Property is traditionally less volatile than shares. It must be remembered that property is not as liquid as shares or managed funds and this is why you should have a well diversified portfolio of investments and include shares and managed funds in your investments. If you need some money, you can sell down some of your portfolio in shares and managed funds relatively easily and within a short period of time. You cannot do this with property.
9. Consider superannuation in your investment strategy
Superannuation is a form of forced investment. As part of your long-term investment strategy, superannuation makes sense, for without it many people would end up with only their own home in retirement. Superannuation can be a very tax-effective investment.
10. Invest for the long term
Realise that you need to have a long-term time frame. Look at a five to 10 year-plus term. There is no quick fix. The best strategy to investment is a regular savings and investment program.
As Samuel Longhorne Clemens (Mark Twain) said: “There are two times in a mans life when he should not speculate; when he cant afford it, and when he can”.