Choosing the right investments
Choosing the right investments is all about knowing your personal circumstances. You should spend some time examining two crucial areas:
- What are your financial goals?
- What is your attitude to risk?
Setting goals is vital – if you don’t know what they are, you’re unlikely to achieve them.
- Consider short term and long term goals.
- Start thinking in terms of the lifestyle you would like.
- Are you looking to buy a house?
- Do you want to send your children to private school?
- Do you have your heart set on an overseas holiday?
- Are there debts you would like to clear?
- Do you want to invest more in your business?
- Are you starting to think about retirement?
- Do you want to set up a nest egg to leave your children or grandchildren?
All investing involves an element of risk. Your attitude to risk will play a significant role in choosing the investments that are right for you.
- How much time do you have to achieve your goals?
- How involved do you want to be in your investments?
- What is your level of investment knowledge? What is your level of interest?
- How secure are you financially?
- How concerned would you be if the value of your portfolio dropped by 10%? 50%?
- Do you plan to monitor your investments every day? Every week? Once a year?
- Are you looking for a ‘set and forget’ portfolio or are you looking to be more active?
There are investments that are suited to every risk appetite; from the most defensive to the most aggressive. You should choose investments that allow you to sleep comfortably at night. Taking on more risk than you’re comfortable with simply increases the chance that you’ll get cold feet at precisely the wrong point in the market cycle.
Click here for more information on investment risk in our section on the relationship between risk and return.
Once you’ve mapped out your investment goals and examined your appetite to risk, speak to your financial adviser. Your adviser can help you choose investments that will help you achieve your goals without taking you too far outside your comfort zone. If you don’t have an adviser, click here to find one near you.