Investor Education
Your money, your future
Why be an investor at all?
The basics of investing
1. Setting goals
2. Risk and return
When considering your investment it is important to understand that:
- The value of your investment and its returns will vary over time
- Assets with higher long-term return potential usually have higher levels of short-term risk
- Returns are not always guaranteed and you may lose some of your money
- Past performance and returns are not indicative of future returns or performance
All investors need to decide how much investment risk they’re prepared to tolerate (or that won’t keep them up at night). Your individual circumstances may affect the level of risk that you are willing to take and therefore, the potential of return on your investments. Factors that you and your Financial Adviser need to consider include:
- Your age and investment goals
- How much time you have (your ‘investment timeframe’)
- Your other assets
- How much risk you’re comfortable with (or risk tolerance)
For example, let’s say you’re aged 40 and your goal is to save for your retirement at age 60. If you are comfortable with your investment experiencing some bad years as well as good, you might invest in a riskier but long-term higher-performing asset class such as shares, given that you have 20 years to ride out any volatility.
3. Choosing the right investments
It’s important to remember that the right investments for someone else might not be the right ones for you. Only after consulting with your financial adviser and after they have assessed your individual circumstances and attitude to investing will you be ready to consider their recommendation on which investments to choose.
The main types of investment asset classes are listed below.
| GENERAL RISK/RETURN EXPECTATION | INVESTMENT TYPE (ASSET CLASS) |
|---|---|
| Low risk, low return | Cash (term deposits, savings accounts) |
| Medium risk, medium return | Bonds and fixed interest |
| Moderate to high risk and return | Property |
| High risk, high return | Shares (also called equities or stocks) |
There are different ways of investing in the different asset classes and a myriad of investment products to choose. For example, you can invest in shares either by buying them directly or via a managed fund, where your money is pooled with other investors and used to buy a portfolio of shares, managed by a professional fund manager.
One way to spread some of the investment risk while still having growth assets in your portfolio is to diversify. This involves spreading your money across different asset classes and investment markets – and even across different fund managers within the same asset class. An effective strategy to achieve diversification is by investing in a ‘multi-manager’ fund, which works on the principle that over time, several carefully chosen investment managers can generate better returns than any single fund manager.
Learn more about Fiducian’s multi-manager funds
Your financial adviser will clearly explain all your options and prepare an investment strategy tailored specifically to you.
