1. Set goals
To set clear goals with achievable targets, ask yourself what’s important to you and why you’re investing. For example, it might be to:
• save for your retirement
• earn a regular income
• manage your money tax-effectively
• save for a big-ticket item such as a house or overseas trip
• leave a legacy for your children
• park some cash for a short time.
Think about your circumstances. How much money do you have to invest? How long you plan to invest for? What do you want to achieve at the end?
Write down your goal. For example, ‘I want to retire at 60 with an after-tax yearly income of $50,000 which will last at least 25 years’ is a good goal because it states a measurable, specific target with a time frame.
2. Decide your risk appetite
Risk is the chance of losing money you’ve invested or it earning less than expected. Usually, the higher the risk, the higher the potential return. Your risk appetite simply means how much risk you’re prepared to take on to achieve your goals. By determining your risk appetite you’ll be able to choose investments that meet your needs over a long period of time.
3. Decide how much to invest
How much you invest depends on your current financial situation as well as your investment goal.
It’s usually helpful to work backwards from your goal: take the final amount, the length of time between now and then, and calculate how much money that is per week or month. Then, taking into account potential returns, the idea is that you’ll need to invest at least that much to get to your desired end point.
Our retirement calculator can help you set goals and give you different options to get there.
4. Choose how to invest
Which asset types are right for you? How much money you have available to invest will affect your choice, as will your risk appetite and investment timeframe.
This step is often called building or structuring your investment portfolio. It’s also important to make sure your portfolio is diversified. Diversification helps reduce your investment portfolio’s risk if the value of one of your investments drops.
To diversify your portfolio, consider investing in different asset types, industries, or geographic regions. For example, if you’re investing in shares, you could consider also holding other investments in cash or fixed interest. If you want to invest all in shares, you could consider investing across a range of sectors, companies and geographies.
5. Decide if you need help from a financial adviser
It can be worthwhile getting an expert opinion before you start investing. A financial adviser can help you determine your goals, confirm your risk appetite, and set up and manage a personalised investment portfolio.
