All Australians have the potential to be successful investors. It doesn’t take piles of cash and you don’t have to be a financial expert. But it helps to use a reasonable dose of commonsense and stick to a few guidelines.
One of the golden rules of investing is to spread your money across a range of investments. This is known as ‘diversification’ and it’s a simple way to reduce risk.
There are plenty of asset classes to choose from including shares, property, fixed interest and cash, and they don’t all move in the same direction at the same time. By investing a little in all of them, rather than concentrating the lot in one investment, you won’t cop the full brunt of losses in the event of a market downturn.
It’s also essential to realise that successful investing is a long term process. Yes, there are plenty of highly speculative ‘investments’ available, many promoting the potential to earn double digit returns. But these often come with a high degree of risk that you could lose your money, and that makes them a lot closer to punting than investing.
For most of us, a ‘sure and steady’ approach is a far more reliable way to build wealth. If you’re unsure about getting starting or you want easy access to a diverse portfolio, it’s worth thinking about an investment fund.
Also known as managed funds, these are offered by some of Australia’s largest financial institutions, and there’s no shortage of funds to choose from. Some funds focus on a particular asset class, like Australians shares. Others invest across a variety of markets providing instant diversification.
You don’t have to make decisions about which shares to buy, or when to sell an investment. The fund manager does all this for you.
One particularly useful aspect of managed funds is that you don’t need much money to get started.
Many funds require an opening investment of around $1,000. However online bank RaboDirect offers access to a wide range of funds for an initial outlay of just $250. Take a look at www.rabodirect.com.au.
Alternately, ME Investment Funds, part of Members Equity Bank, has a managed fund service that lets investors start out with just $80 as long as you contribute an additional $80 each month until your balance reaches $1,000. Visit www.investwithme.com.au for more details.
All managed funds charge annual fees and it’s important to check these out. Fees can vary significantly and over time they can have a big impact on the value of your investment. Note too, paying a higher fee doesn’t mean your money will earn higher returns.
Whether a managed fund is right for you will depend on the extent that you want to control the selection and management of your investments. Overall though, managed investments tick plenty of boxes when it comes to sensible long term investing.