16 tips for investors Brightthinking · 16 tips for investors Brightthinking 16 tips for investors...

Brightthinking16 tips for investors






Brightthinking16 tips for investorsBrightthinking16 tips for investors









Someone’s sitting in the shade today because someone planted a tree a long time ago.

~ Warren Buffett

1 Save one-tenth of everything you earn, aside from super

2Regularity is the key to good investing

3Insure, protect yourself

4Your super is your investment for the future

5Long-term is long-term

6High reward investments can be risky

7Never make an investment based on tax alone

8Regularly check your investments against your plan

9Buy low, sell high

ContentsContents

10Starting early is key — pass down good savings habits

11Never invest in anything you don’t understand

12When taxi drivers are tipping — it’s too late

13Don’t put all your eggs in one basket

14Look forward not back

15You don’t have to do it alone

16Save your luxuries until last

ContentsContents

never make an investment Based on tax

save one-tenth of everything

Saveyou earn, aside from super


In the George S Clason classic, the richest man in Babylon said, that “gold cometh gladly and in increasing quantities to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family”. In other words, putting away 10 per cent of your current income (aside from that already put into superannuation) will through the benefit of compound interest, regular investment and good financial behaviour of not spending more than you earn may result in a passive income stream or ability to earn income while you sleep.

It’s important to allocate this money from your salary before you see it — set up your pay to automatically deduct this amount and put it in a separate investment account that you do not touch for anything other than investment. Make sure if you are keeping it in the bank you are earning a good interest rate and that you are receiving (where applicable) a bonus for not withdrawing.

Saveyou earn, aside from super


regularity is the key to good investing

REGULAR


Timing the stock market is impossible. Even the most experienced analysts have great difficulty determining whether the market is at the very top or bottom of the economic cycle. That’s why drip feeding money into the market via an investment plan makes so much sense.

If you regularly invest a set amount of money — regardless of what the market is doing — your investments should grow, the price you pay for them will average out over time and you will make the most of the natural cycle of the stock market.

regularity is the key to good investing

REGULAR


InsureproteCt yourself


Insure

Many people forget that the most important asset they will ever have is their ability to earn an income. Without an income we cannot pay down debt, we cannot set up a passive income stream, we cannot save for our retirement. We cannot live!

Treat your ability to earn an income as reverently as all your other valuable assets and protect it with insurance. You naturally insure property, shares, artworks and the like — don’t forget to insure yourself, just in case you can’t work due to illness, accident or injury.

proteCt yourself


Superyour super is yourinvestment for the future


Super

Super is an investment. It’s typically the biggest investment you will ever have, apart from your home, so treat it as one. Pay attention to what your super is invested in and how the investment is performing in relation to other similar superannuation products. Remember it is a long-term investment, so don’t worry too much if the value moves up and down with the markets. Do worry if your superannuation fund manager is consistently not performing as well as others.

Also, make sure that you are aware of the value of your superannuation balance and regularly check to see that it is on track to accumulate the money you need for your retirement. Ask your financial planner to help you with this. Also check how much difference adding a little more each week to your super account will enhance your retirement balance. Your financial planner can also help you with this.

your super is yourinvestment for the future


PATIENCE

long-term is long-term


PATIENCE

Your money has to last you a very long time. Your investment strategies need to reflect the length of time your money will be invested. Long-term means long-term — an investment in superannuation, for example, typically lasts for up to 40 years in accumulation phase and 20 years or more in retirement. Keep this in mind when looking at long-term averages. Don’t sweat the small stuff, make sure the long-term goals remain on track and don’t panic about short-term movements.

Keeping your money in cash or cash products for the long-term, even after retirement, is probably not the best strategy because the value of your money will not keep pace with inflation and your buying power will therefore reduce. It is likely you will need to earn more than the cash rate and so you might like to consider investing in the share market which is, over time, a higher returning asset class.


RISK

high reward investments Can Be

risky


RISK

As Erica Jong, author of Fear of Flying, once said: “If you don’t risk anything, you risk even more” but before taking any risks with your money, you need to understand the very real relationship between risk and reward. In a nutshell — the greater the potential reward, the greater the risk.

Before investing in anything, make sure you understand what the risks are and whether they are risks worth taking. Is the potential for greater reward worth the money you are risking?

A general rule of thumb for assessing investment risk is to compare promised returns to the return on cash. If you could get five percent by leaving your money in the bank, do the potential rewards from other asset classes compensate you for the risk you take when you withdraw your money from the bank and put it in the alternative asset?

According to the Australian Securities and Investment Commission (ASIC) the best scam buster is the well-informed consumer. Many people lose money each year on scam investments — don’t be one of them.

risky


TAX


alone


TAX


When investing your money, you should be looking at the capacity of the investment to pay returns and/or to produce capital growth. If there is a tax benefit on top — that’s great. However, the tax benefit should never be the primary reason for the investment. In fact, any investment which is heavily promoted as ‘tax effective’ should always ring alarm bells.


CheCk

regularly CheCk your investments…

against your plan


CheCk

regularly CheCk your investments…

Once you have an investment plan, your financial planner will more than likely have allocated your money into various asset classes — a percentage will, for example, be invested in cash, another percentage in shares, another in property assets, etc. But changes in the value of the assets within each class can mean you have a greater percentage invested in one asset class than you originally intended and less in another.

So it is important to check with your financial planner, at least annually, to ensure that your investment is still in line with your original asset allocation. The investment can be rebalanced by your financial planner by taking some of your earnings from profitable asset classes and reinvesting in others.

TipsBuy low

sell high

Tips

The rule of thumb for all investments is to buy low and sell high. This is often easier said than done! Especially if everyone else is buying — or conversely, if everyone else is selling.

But if everyone else is buying, then it’s likely to be at the top of the market (when prices are most expensive) and you will be paying too much for the investment. If everyone else is selling, then it’s likely to be at the bottom of the market (when prices are cheap) and if you sell, you’re not going to get what your investment is really worth.

You don’t want to pay more for an investment than what it is worth and likewise you don’t want to sell one of your investments too cheaply. So to be successfull at investing, you’re going to have to learn to go against the herd. It’s going to take a clear head and a lot of willpower but the more you understand about the investments you are making the easier it will be to hold your nerve and know the real value of assets as distinct from the noise in the marketplace.

Start

starting early is key –

pass down good savings haBits

Start

The best advice investment advice you could give anyone is to start early. Make your money start working for you as soon as possible. It has been shown that investing early can mean that even if you stop contributing money to your investment after just a few years you can still enjoy a balance higher than if you saved more each year for a longer time later in life. This is due to the effect of compound interest and time.

And be a role model for your children. The earlier they learn the benefits of a good savings plan, the better their financial future is likely to be.


CAREFUL

never invest in anything you

don’t unders


CAREFUL

If someone tries to sell something to you and you don’t understand it then you won’t know whether it is a good investment or not. You won’t know whether it is doing what it should, or when it might be going wrong.

As an investor, you might not know which companies to invest in and how they are likely to perform — professionals can do this for you — but you should know why you are choosing to place your money in a particular type of investment and what the manager is expecting to do with your money. If this can’t be explained simply in terms that you can explain to your friends or family then you probably shouldn’t be putting your money into it.

never invest in anything you

don’t unders

tand


TIMING

when taxi drivers are tipping,

it is too late


TIMING

when taxi drivers are tipping,

it is too late

Any investment tips that are broadcast in newspapers, blogs, chat rooms or taxis are not good tips. Think about it: if everyone already knows about them then the potential upside to the investment is already reflected in the price. It might actually be a time to sell the investment, not buy.

You make money from an investment when you see potential in it that other people don’t. For example, this investment is cheaper than competitors for no particular reason, or this product is going to take off, or this is an industry which is going to increase in value because of new regulations.

This is the kind of analysis professionals like fund managers do on a daily basis. They look at companies to see if they think there is more value in them than the market currently does. They interview company CEOs, CFOs, industry heads and the like and find things out about companies they invest in before the general market.

If you are listening to the noise around investments when everyone is talking about them, it’s too late: the potential has already been discovered and will already be reflected in the price.


in one Basket

don’t put all your eggs

DIVERSIFY


in one Basket

don’t put all your eggs

DIVERSIFY

This is an oldie but a goodie — spread your investments around. Why? Because if one investment goes bad it won’t hurt so much. Too many people have all their money invested in too few assets which means that when something goes wrong, they suffer big losses. If you have a well-diversified portfolio, made up of different types of assets, then chances are that while one might not be doing so well, others will be.

Good financial planners can help you build a diversified investment portfolio which will spread your investments and your investment risk.

Another great reason to diversify your portfolio is to improve your access to funds in an emergency. If you need money urgently, you can sell the investments in your portfolio which make the most financial sense at the time, rather than having to sell the lot — potentially, depending on where things are in the economic cycle, at a loss.


FUTURE

look forward

not BaCk


FUTURE

Past performance is no guarantee of future performance. This is the written disclaimer that accompanies almost all financial planning products. Keep this in mind when investing.

While past performance is indicative of relative strengths of particular asset classes and good managers and the performance of fund managers when repeatedly outperforming others in their class is indicative of good management, it’s not an iron-clad guarantee and is not even always a reliable indicator.

This is because markets change and investments are cyclical in their relative strengths and the investment styles which may have achieved best results last year may not be those which achieve the best results this year. In fact, they may be amongst the worst. Yet another great reason to diversify your investments.

look forward

not BaCk

never make an investment Based on taxyou don’t

have todo it alone

HELP

never make an investment Based on taxyou don’t

have todo it alone

HELP

When it comes to growing wealth, don’t feel that you have to do it alone and figure it all out by yourself. There are many investment professionals who can help you maximise your wealth and make the most of your lifestyle.

A financial planner can help you prioritise what you think is most important in life and how best to achieve as many goals as you can in an acceptable timeframe. A financial plan will free you from worry that you won’t have enough for the future or that you can’t keep on track with your objectives.

Fund managers, brokers, accountants and property managers can also be great resources. Don’t be afraid to enlist their help — as much or as little as you want.

never make an investment Based on taxsave your

luxuriesuntil last

FINALLY

Rich man poor man author Robert Kiyosaki says it is important to live like the rich to become rich. Rich people buy luxuries last; the poor and middle class often buy luxuries such as big houses, diamonds, furs, jewellery or boats because they want to look rich. They look rich but they get deeper in debt on credit. The real rich build their assets first and use the income they generate from these assets to buy luxuries.

never make an investment Based on taxsave your

luxuriesuntil last

FINALLY

thoughts

thoughts

Things you should know: This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.



















Like to know more?

> Talk to your financial adviser

> Visit bt.com.au

> Call 1800 104 800.

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