Investing

What sort of investor are you?

There are many different investment options to select from and your choices will largely depend on your personal circumstances and financial goals. Can you afford to accept some risk and focus on growing your wealth? Or are you more comfortable with a conservative approach and the peace of mind that your money will be safer? Do you fit somewhere in between these two investment positions? Or are you are looking for an investment option that offers both security and growth?

Whatever your situation, you can enjoy the power of compound interest – by reinvesting the interest or dividends earned, you can effectively start earning interest on the interest and make your savings work even harder for you.

The importance of diversification

Diversification across asset classes is essential. If all your money is in a particular product or area of the financial market, you are potentially taking an unnecessary risk if the market drops.

Essentially, there are four broad types of asset classes you can choose to invest in, ranging from low-risk to high-risk options:

cash – the most secure option, usually with the lowest level of return
fixed interest – still a conservative investment, but generally offers a higher level of return, without the volatility of share markets
property – offers a potentially higher level of return but with a certain degree of risk, and
Australian and international shares – provides the potential for a higher level of return, with the most risk.

Regular investing

Rather than investing all your funds at a particular point in time, invest smaller amounts over an extended period at regular intervals, say monthly. This helps to smooth out the ups and downs of financial markets and reduce the risk of capital loss.

This means that when prices in investment markets are lower you can buy more of your chosen investment. And when prices are high, your money will buy less. But because you are investing smaller amounts regularly, you are giving yourself a degree of protection against market price movements. Talk to us for more information.

Split your income to minimise tax

Income splitting can be a useful way for couples to minimise tax on their investment earnings. It generally involves holding certain investments in the name of the person in the lowest income tax bracket, so that the earnings will be taxed at the lowest possible tax rate.

Case study – potential tax benefits of share investments
Why invest ‘with’ the bank when you can invest -in- the bank? Most shares pay a fully-franked dividend on which company tax of 30 per cent has already been paid. This means you will receive an offset of 30 per cent on any tax payable. So a share dividend cheque representing franked income will provide higher net income than an interest cheque of the same amount.