Do you want to take control of your financial future? Getting started is easier than you think. The first step is to set a goal. Most people simply want tomake their money work harder so they can improve their lifestyle, educate their children or save fortheir retirement.
Here are six tips to help you take control of your financial future.
- Start with a plan.
Smart investors don’t just look for good investments. They look for investments that will helpthemachieve specific goals.
For example, you may be looking to achieve a better return on your cash than you can with a term deposit. In this case, a high-yield investment property may be a good option. But someone who is seeking capital growth may be more interested in a growth-focused investment property that doesn’t focus on income.
- Diversify widely.
One of the main goals of investing is to ensure you have a mix of assets that are likely to performwell at different times – helping you survive any downturn in a specific market or industry sector.
While many Australian investors are heavily exposed to Australian shares through theirsuperannuation funds, a well-diversified portfolio will generally hold assets in each of the majorasset classes (e.g. Australian and international shares, property, fixed income and cash).
- Watch your costs.
It’s easy to get fixated on the returns your investments can generate. But successful investors alwayskeep track of, and seek to minimise, the fees and taxes associated with owning them.
A buy and hold strategy can help you avoid transaction costs like brokerage, or buy and sell spreads from managed funds. It can also help you reduce capital gains tax, which generally decreases by 50%when you’ve held an asset for over 12 months.
- Invest gradually.
Attempting to time the market can be a dangerous strategy that can increase the risks of investing, particularly if you invest all your savings at once.
A good way to manage the risk of a market downturn is to invest gradually over time, otherwiseknown as dollar cost averaging. This allows you to average out the cost of your investments, makingthe timing of each transaction less important.
Tip: most managed funds will allow you to set up a BPAY arrangement so you can invest in a regular and disciplined way.
- Don’t panic.
When share markets retreat, smart investors don’t hit the panic button and sell long-terminvestments that are likely to bounce back at some stage.
Instead, if you continue to invest during a market downturn, you may be able to buy high-qualityinvestments at a lower price than you could if you waited for markets to recover.
- Protect your assets.
Even the best investment strategy can become a challenge if you need access to your money in anemergency.
A smart strategy is to ensure you maintain a sizeable cash reserve and put in place appropriateincome protection and life insurance. Having the right insurances in place can help prevent the needfor a quick and unexpected sale of your investments if you suffer a serious illness or accident.
Tip: income protection typically replaces up to 75% of your income if you can’t work due to an illnessor accident. The premiums for this type of cover are generally tax-deductible.
Well defined financial goals provide a higher level of commitment and ensure you’re accountable and that both partners are aligned to provide the best opportunity to achieve your desired outcome.