Disclosure Statement: Durand Financial Services Pty Ltd and its advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. General Advice Warning: The information contained within this website does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances.
Smart investors don’t rely on good luck; they plan, research and understand their investments and how these fit with their financial goals.
If you’re planning to invest, being well prepared will improve your chances of success. Think about your investment goals and where you want to be in the future.
Ideally, you will have at least one financial goal in mind; however, smart investors think about short, medium and long-term goals. Allocate a timeframe to achieve each goal. To find out more, read our tips on financial goal setting.
Once you have set your goals you’ll need to develop an investment plan that meets your needs and is achievable.
Setting investment goals is important but you also need to consider your appetite for risk. A study by ASIC on financial behaviours found that 27% of people had heard of the risk/return trade-off but didn’t really understand it, and 39% hadn’t heard of the risk/return trade-off at all.
Investments that carry more risk are usually better suited to long-term investments because potentially higher returns come with greater short-term volatility. On the flip side, being too conservative with your investments may make it harder to reach your financial goals.
Aim to match investments to your goal timeframe, but make sure you are comfortable with the types of risks associated with each investment. Find out more about risk and return.
Judging expected returns
To help you work out whether the returns offered by the investment opportunity are reasonable, compare them to the expected returns of similar products. Be wary of returns that seem high compared to similar investments. Also be aware that some investments that offer relatively modest returns can also be high-risk.
It is important to only deal with people and businesses that are licensed so you’re better protected if things go wrong and can access free dispute resolution services.
Checking investment schemes
You can use ASIC’s Professional Registers to check whether a company or investment scheme is licensed by ASIC. ASIC lists allow you to check basic facts about companies and investment schemes, such as whether they hold an appropriate licence.
Be aware that a licence from ASIC does not mean that ASIC endorses the company or investment or that you can’t incur a loss from dealing with them. It means the business has met basic standards such as training, compliance, insurance and dispute resolution. Checking ASIC’s databases should be only one of the many checks you do before you invest.
Checking financial advisers
If you are planning to use a financial adviser you can check they are licensed on ASIC’s financial advisers register. The register will also tell you where an adviser has worked, their qualifications, training, memberships of professional bodies and what products they can advise on.
Before you jump into any investment, you’ll want to know:
- How is my money being invested?
- How well has the investment performed compared to similar investments over the last 5-10 years?
- What are the fees (including up-front and ongoing fees, performance-based fees and exit fees)?
- Is there is a ready market if I need to exit the investment?
Read the product disclosure statement (PDS) for each investment product and make sure you understand the product’s key features, fees, commissions, benefits and risks. Ask the product provider or a financial adviser if you need further clarification.
Consider the tax implications
An investment is ‘tax-effective’ if you end up paying less tax than you would have paid on another investment with the same return and risk.
While lower tax can help your savings grow faster, you should never base an investment decision on tax benefits alone. Find out how tax works with investments.
A good way to manage risk is to spread your money between different asset classes, such as cash, fixed interest, property and shares. This is known as
It’s also a good idea to diversify within asset classes, for example a share portfolio may hold shares across different sectors, such as banking, resources, healthcare and infrastructure. A diversified property portfolio could include domestic, commercial and retail property.
Diversification reduces your overall investment risk and leaves you less exposed to a single economic event. So if one business or sector fails or performs badly, you won’t lose all your money.
If you have a smaller amount to invest or don’t want the responsibility of choosing individual investments, you might consider an exchange traded fund or managed fund that invests in a broad range of assets.
Investment scams can be so professional, slick and believable that it’s hard to tell them apart from genuine investment opportunities.
See our tips on how to spot an investment scam and remember scammers usually come to you. If you are being offered an investment opportunity by a person or company that you have not contacted, ask yourself: where did they get your details and why are they contacting you with an investment opportunity?
Check out our tips to protect yourself from scams to get familiar with the tricks used by scammers.
Smart investors don’t rush; they plan, research and choose their investments carefully. Clarify the reasons why you’re investing and only invest in products you understand.