07:51 AM, 24 Feb 2017 (AUS EST)   The market is currently closed       

Planning Your Investments - setting investment goals

If you decide to go see an investment advisor, the first thing they should ask you is what your goals are. What are you striving for? Sure, we all want to retire now, but realistically, what can you do with your current funds to maximise your wealth and get to where you want as soon as possible. Of course, your life situation is probably an important factor in your decisions, are you about to retire and want to maximise your superannuation payments? Or, are you younger and saving to buy a house?

What time frame are you looking at? Do you want to invest for 2 years, 4 years or 20 years?

Your life goals and the time frame you want to achieve them is a factor that will decide what investment vehicle you choose. For example if you are saving for a car in 2 years time you might think about investing in term deposits, where-as you might choose a balance share fund for a holiday in 4 years or a direct share portfolio for retirement in 20 years. You may even have a number of goals, short term goals, medium term goals and long term goals.

Risk Appetite

Risk appetite is important in deciding your investment strategy. What you’re willing to put on the line to make the money. In most cases, the more risk you take, the more likely you are to make more, but more likely to lose it. So before you start investing you need to ask yourself, ‘what is my investment type’, conservative, aggressive of a combination of both.

These questions will match you to a particular investment type. But you also have to consider if you want to borrow to invest and how much you would like to borrow. Do you have any outstanding debt, and what kind of repayments do you need to make on this? These personal finance questions factor into what we can do with your investments.

If you have high levels of credit card debt, you should try and pay this off first because the interest rates on this are usually 15% per annum, but this is compounded monthly, so the actual rate is higher than 15% (it’s 17.2%).

Assuming you decide that equities are the way to go, will you have time to watch the market each day? And how do you feel if your share price goes down 2%, 5% or even 10%? Do you want regular and stable dividends?

Generally, you don’t have to think about your pool of money as something that must be invested in long term investments or short term investments. The good thing about investing is that you can diversify by getting a mixture of everything. But what is the right mix for me?

We can run through some typical investment choices:

Let’s consider Michael’s position:

I’m 25 years old and have just started working professionally as a graphic designer. I’m single and am renting my accommodation, with no credit card debt. I would like to travel overseas within one year and would like to save for a deposit on a home to buy in 5 years. I have $20,000 to invest – what types of investment should I invest in?

Michael’s investment might look like the following:

  • Balanced portfolio of blue chip equities: $10,000
  • Balanced managed fund: $10,000

Audrey’s position is a little different. She is 45 and has two children under 15. With $20,000 to invest to save for private school, what should she invest in? Audrey might invest in more conservative long term investments such as:

  • A term deposit
  • Blue chip equities
  • Balanced managed fund