Setting your investment goals
To invest successfully, you need to establish investment goals. Having a clear understanding of your goals will help you select the most appropriate investments to achieve them.
To help you assess your current financial situation, and therefore how much you can afford to invest, you should prepare a current budget. This will help you to determine how much you can afford to invest.
While a budget is a good start, it is also worthwhile to speak with a financial planner about not only having a financial plan, but also an investment plan.
Why should I invest?
There are a number of goals you may want to achieve from investing, but they’re likely to fall into one or both of the following.
1. Capital growth: building and protecting your money
Planning your investments may help your capital to grow at a real rate (after fees, tax and inflation) so that you’ll be able to buy more in the future than you could if you spent your money today.
2. Income generation: paying an income
You may want to reach a stage in your life when you can choose to live off your capital. Typically, this is when you retire and you want your capital to support your lifestyle.
Short vs. long-term goals
You may have a mixture of short, medium and long-term goals. As investments vary in risk and return, you need to understand your goals and match your investments to these goals.
For instance:
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In the short-term you may be saving for a car or to take an overseas trip, so you need an investment where your money is accessible and the return is reasonably certain. The best type of investments to suit these goals could be banking products, with no risk of losing any of your money over a short period (even though the return may be minimal).
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At the other end of the spectrum, a medium to longer-term goal may be saving for your children’s education or a deposit for a house. Here, you should consider products that provide you with more growth over the longer term. Growth assets are more likely to help you achieve this goal.