Investment Services

Do you find money slips easily through your fingers leaving you with very little at the end of the day? Would you like your hard-earned money to work harder for you?

 The biggest fallacy about investing is that it’s only for the rich. This is far from true - you don’t have to be wealthy to be an investor. In fact, investing is an effective way to create wealth. Put simply, investing involves putting your savings to work, helping you achieve your financial goals sooner. Wisely selected investments can increase your wealth, provide you with an income, or both.

You’ve worked hard for your money; by investing it you can make it work for you. A professional financial planner can work with you to help you achieve your financial goals – whatever your goals may be.

Which Investment is Best for You?

There’s no single answer to this question - it all depends upon your individual needs and circumstances.

Whilst there’s a broad range of investments available, selecting the best option can be difficult.

Your choice of investments should be consistent with:

• your short, medium and long term goals;

• your current financial position; and

• the level of investment risk you’re prepared to accept.

You’ll also need to consider:

• security - how secure will your money be?;

• liquidity - how readily accessible will your money be?;

• estimated returns - what results can you expect?;

• resistance to inflation - will your investment grow at a faster rate than inflation?;

• impact of tax - what percentage will the "taxman" get?;

• social security implications - how will it affect your eligibility?; and

• investment horizon – for how many years are you planning to invest?

Your choice of investments should be guided by a strategic financial plan, not by instinct or rumours of "an outstanding investment opportunity".

Investing without a strategy has been likened to building a house without an architect’s plans. At best, the end result will be unsatisfactory; at worst it will be worthless.

That’s why it’s imperative to seek professional advice. A financial planner can help you design an investment portfolio (a collection of investments) to suit your needs.

What Investments are Available

Most investments can be categorised into either lower risk defensive assets (eg. cash and fixed interest), or higher risk growth assets (eg. property and shares).

As a rule, the higher the investment risk, the higher the potential return. Consequently, over time, returns from growth assets generally exceed returns from defensive assets. However, it must always be remembered that the higher the return, the greater the risk or volatility and the potential for loss.

Understanding the pros and cons of all the available investment types – and what’s right for you – can be a difficult task. A professional financial planner can help you select the right investments to suit your individual needs.

Below is a brief explanation of the main investment sectors (otherwise known as asset classes).

Defensive Assets

Cash

Cash (eg. bank accounts and bank bills) are generally only considered appropriate as primary investments if your time frame is short (up to three years), or to accommodate the need for ease of access.

If you’re looking at investing for three years or more, growth assets may be a far better investment choice.

Fixed Interest

Many investors believe the fixed interest sector consists solely of investing in bank term deposits. A bank term deposit is where funds are "locked in" for a fixed period and earn a set return. However, fixed interest investments actually come in many forms including:

• treasury notes a short term debt instruments issued by the government;

• debentures interest bearing securities commonly issued by finance companies; and

• fixed interest trusts a unit trust that invests in a range of fixed interest securities. For example, mortgage trusts and bonds (government, semi government and corporate).

Growth Assets

Property

People’s largest investment and asset is usually their own home. However, investing in property isn’t confined to owning your home or even a rental property. The property sector comprises the following classes:

• industrial;

• commercial;

• residential;

• retail;

• rural; and

• tourism.

You can either purchase property directly, or you can invest in a property trust. Investing in a property trust generally gives you access to a range of property classes (as listed above) including - from large shopping centres to residential flats.

Property is generally viewed as a secure long-term investment, often providing better long-term returns than cash and fixed interest.

Shares

Put simply, purchasing shares gives you part ownership in a company and the right to receive a portion of the profits (commonly referred to as dividends).

Changes in share prices reflect the market value of the company. Fluctuations in the market value of shares will be reflected in the underlying value of your original investment.

Income is paid to you in the form of dividends, representing your share of the company’s profits.

An added bonus is that dividends can provide you with substantial tax benefits, because they are usually franked - either fully or partially. This means the company has already paid tax on this money - usually to the corporate tax rate of 36 per cent. In some cases, it may be even higher.

The share market is characterised by volatility, with the value of share prices often fluctuating on a daily basis. However, over time, the impact of the daily movements diminishes. In fact, over the past twenty years, shares have consistently outperformed other investment sectors.

The share market can be a high-risk prospect if you speculate. Speculators "gamble" by attempting to profit from short-term fluctuations in share prices. The risk is substantial because it’s extremely difficult to predict the market’s movements over the short term.

Shares can, however, be relatively low risk if you take a longer-term view and invest in well-researched companies that are fundamentally sound.

If you are not comfortable entering in to the share market directly, but want to invest in this asset class, a managed investment (where your funds are pooled with those with other investors and invested by specialists) may be a good investment option for you.

When Should You Invest?

It’s not when, but rather for how long you invest which will determine how effectively your money grows.

By maintaining a long-term view of your investments, you can reduce the impact of short-term market fluctuations and, over time, enjoy higher growth.

For example, if you were to invest $200 each month at five per cent interest, your total interest at the end of one year would be $2,466, less tax and management fees. However, this figure would increase to $13,658 after five years and $31,186 after 10 years.

As you can see, there’s a lot to be gained by giving your investments time to grow.

A long-term investment strategy has the added advantage of compounding the interest you earn on your investment.

Compounding

Compounding is when you reinvest the interest you earn on an investment. Over time, this can be an effective means of accelerating the growth of your money.

Say, for example, that your six months’ fixed interest bank account has earned $25 in interest. After tax, you could either spend the interest or reinvest it with your original lump sum for a further six months.

If you continue to reinvest your interest over a few years, you’ll be earning interest on your interest on your interest…

This "snowballing" principle works with a variety of investments. For further information see our section on Budgeting and Savings advice

Should You Invest Directly?

Investing on your own means that you have full control over your investment choices. However, to manage your investments properly, you need to keep up to date with market movements and legislative changes.

This can be very time consuming and requires a high level of financial expertise. Consequently, many investors prefer to seek professional advice for expert assistance in the selection and management of their investments.

Alternatively, some people choose to put their money into a managed fund – a financial planner can help you choose which one is right for you.

Managed Funds

When investing in a managed fund, your money is pooled with that of many other investors. This enables the fund manager to buy a wide range of assets.

When you invest in a managed fund you’re issued with a number of units. These represent your ownership in the fund. As the performance of the fund varies, the value of your units will fluctuate in the same way that share prices fluctuate.

The benefits of investing in a managed fund include:

• diversification - the opportunity to gain access to a wide range of assets with a relatively small amount of money;

• greater buying power - access to assets which would normally be beyond your reach, such as an overseas company or a large shopping centre;

• increased liquidity - the flexibility to sell your investment units at any time; and

• professional management - having full time financial experts looking after your investments. This has the advantage of potentially less risk and greater returns.

As management fees vary from fund to fund, it makes sense to compare fund managers’ fee structures before deciding where to invest.

Most people’s needs can be met by selecting from the range of managed funds available. Some funds are growth oriented, others focus on providing you with an income, whilst others still provide both growth and income. Your financial planner can help you select the best choice for you.