It’s important to consider how you’ll keep your nest egg earning while preserving what you’ve worked hard to accumulate. And it’s not just about number crunching; having a healthy relationship with money can help improve your quality of life and is especially valuable when you are relying on investment income to fund your lifestyle. Having more confidence with making investment decisions can help you better manage your money – whether it’s in cash and you’re thinking about an investment portfolio to combat low interest rates, or if you want to get more involved with the investments held in your super portfolio.
Five key considerations to make the most of investing
1. Understand your relationship with money
We all have a unique relationship with money that may have been influenced by our parents and the society and times we grew up in. But for most of us, the purpose of investing is to support our lifestyle. This will likely include independence, peace of mind that your money will last, knowing you can cover potential healthcare costs, and for some, flexibility to support family, friends and charities. While getting more involved with your finances can seem daunting, remember that feeling emotional about money is perfectly normal and it’s important to keep taking small steps.
2. Measure your tolerance and capacity for risk
How prepared are you to watch your money fluctuate? If a major financial event like the GFC happened again or if you had unexpected expenses, could you cover it? Investments rarely run in a straight line and you don’t want to be losing sleep over it. Risk profiling (often referred to as your tolerance to risk) measures how much risk you are prepared to bear in exchange for the potential of better returns. This guides your decisions about balancing your portfolio between defensive (conservative) type investments and the riskier growth ones.
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3. Get familiar with diversification
The saying ‘don’t put all of your eggs in one basket’ is certainly true when it comes to investing. Diversification helps you balance the inevitable ups and downs of financial markets by spreading your money across different asset classes (i.e. cash, property or shares), across regions (i.e. domestic, international and emerging) and within specific asset classes. This can improve your returns over the longer term because good performances in some asset classes may offset poor performances in others. It can also help reduce risk and overall volatility.
4. Think about how and when you’ll need to access your money
Consider your retirement plans, financial commitments and any dependent responsibilities. Having a clear timeframe for all big ticket items can help you ascertain how much of your portfolio should stay in highly accessible accounts (i.e. cash) and how much you can afford to invest for the long term. This can help you manage both transaction costs and risk.
5. Consider the structure that works best for you
From a self managed super fund (SMSF) to family trust or personal portfolio, there are different tax and accessibility considerations to be aware of when structuring your investment portfolio. It’s also important to think about how much time you want to spend overseeing your portfolio. Managing a multitude of individual Australian shares for example will be far more time consuming than a Listed Investment Company. A financial advisor can help you work out what best suits your requirements so you can make the most of investing.
Discover how Dixon Advisory may be able to support your investment goals for retirement with an SMSF.
This article has been sponsored by Dixon Advisory and Superannuation Services Limited (ABN 54 103 071 665, AFSL 231 143). For more information, please visit the Dixon Advisory website.