Once the territory of bankers and the wealthy middle classes, investing has become more accessible to a broader demographic in recent years. At times this has seen some investment markets (for example share trading) become an emotional place, heavily influenced by the news of the day. That can make embarking on an investment strategy daunting, if not downright scary. But, with the help of a qualified financial advisor, it doesn’t have to be.
Follow Matthews Steer Private Wealth Advisor Anthony Chimirri’s guide to the basics of investment to learn how a financial advisor can help support you to get started in the world of investing.
Types of investments
The term ‘portfolio investment’ doesn’t just refer to playing the stock market, it covers a wide range of asset classes from share trading, property and business investments, to managed funds, credit funds, term deposits and other fixed interest funds. With so many options it can, understandably, be difficult to know what to invest in when you’re first starting out. To narrow down their investment options, I recommend my clients ask themselves what they’re interested in, and where they see potential growth, and therefore return.
My seven investment assessment questions
When I’ve helped my clients to narrow down their investment options and they are weighing up the pros and cons of a potential investment, I recommend they ask themselves my seven investment assessment questions. These are designed to pinpoint the right investment for them.
How long do you want to invest for? If you’re looking to increase your wealth in six months, traditional shares won’t help.
How much capital are you willing to invest to buy into this investment? What is the amount of money can you afford to tie up in an investment, that you’re not going to need for something else? If the worst happens, how much can you afford to lose.
How comfortable are you with fluctuations in the value of your investment? The value of shares and managed funds can fluctuate. How will that make you feel emotionally?
How much effort or engagement on your part will the investment require? Some investments, for example property and businesses, require a high-level of engagement from the investor. Do you have the time and capability to service that responsibility? (Whatever you invest in will require your time and attention to some degree.)
Why do you think the investment will reap favourable results? As with all important commitments in life, you need to understand your ‘why’. Don’t be influenced by others’ opinions. Understand why you believe your investment will bring a return.
If the investment folds or goes bust how will you feel? Some shares, foreign exchange, and hedge funds are recognised as volatile and potentially high-risk. Can you hold your nerve and ride the ups and downs.
How quickly can you sell the investment if you need cash urgently? Some investments – for example property – take longer to liquidate than, say, shares for example.
A client’s answers to my investment assessment questions can provide a strong indication as to where to invest.
Once we have identified a particular investment, my next step is to ask my clients to fill in a risk profile questionnaire which helps us to understand their investment style and determine their risk tolerance.
Investment risk profile
I don’t like to describe investments as high or low risk, I prefer the terminology
growth assets (higher potential return accompanied by higher potential risk) and defensive assets (those that provide a steady or stable income stream).
Examples of growth assets
Shares – international and domestic
Property – international and domestic
Currency - international and domestic
Examples of defensive assets
Bonds – government or corporate
How to Invest
Determining an investment strategy is a matter of answering my seven investment assessment questions, completing a risk profile questionnaire and understanding the risk profile of your proposed investment. If you’re looking for a return within a year’s time, I’d tend to look at the more defensive, fixed-interest assets. If you’re not in such a hurry look into growth assets like property. I’d recommend always speaking to a financial advisor before you begin building an investment portfolio. At Matthews Steer we offer clients what we call a financial health check which really opens their eyes to their goals, objectives and motivations. Once we help them understand what they’re really trying to achieve with their investment portfolio we can help them make investment choices that enable them to achieve their financial goals.
How much to invest
Again, it comes down to how much you can afford to lose. You have to have a clear picture of what you spend and what you need to live off day-to-day. Only invest what you can afford to lose. And, particularly if you’re investing in growth assets, make sure you have a financial buffer outside the investment so you don’t have to liquidate your assets in a hurry.
My golden rules for investing
These are the three things you should ALWAYS factor in when assessing an investment opportunity.
Beware. If an investment seems too good to be true, it generally is too good to be true.
No investment is passive. There’s work involved no matter the asset type.
The expression ‘time the market’ is nonsense. If you’re going to invest there’s no better time to do it than now, because it’s a long-term process. Investing is not complex if you’re prepared and resourced to stick with your investment.
How to learn more about potential investments
COMMSEC: ‘Insights’ page at macquarie.com.au enables users to build their investment knowledge with ideas and insights from industry experts.
Morningstar: Subscription-based ‘Investor’ platform offers market-leading independent research, ratings and tools for individual investors.
Macquarie: Issues a monthly report that provides the latest investment market insights and a deep dive into the performance of each asset class by their Investment Strategy Team.
Real estate websites such as realestate.com.au and domain.com.au share property sale prices and trends.
At the end of the day, the most important keys to portfolio investment are to educate yourself, make decisions based on facts, and to ask yourself my seven investment assessment questions in order to weed out fads, get rich quick schemes and investments that won’t suit your objectives. There’s no better time to invest than now, just make sure you sort out your personal financial priorities (with the help of a financial advisor) before making your first move.
If you are looking for advice in relation to starting or growing your investment portfolio, or you would like to chat to a financial planner or wealth adviser, don’t hesitate to get in touch with Anthony on (03) 9325 6320 or email Anthony.
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