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Investment planning

First steps towards an investment plan

Depending on your income and savings, investments could be an important part of your financial plan and strategy.

The range of investment options is broad and includes:

  • Superannuation funds
  • Shares in Australia and overseas
  • Term deposits
  • Investment properties
  • Government and corporate bonds
  • Listed property trusts 
  • Managed fund units
  • Commodities, such as gold etc.

If you’re not familiar with investing, or particular investment options, then it’s wise to seek the assistance of a professional financial advisor or investment advisor.

How do you feel about risk?

All investment involves a certain level of risk; you can read more about risk management here.

Planning to invest

Once you know your financial situation, you’ll be able to start drawing up an investment strategy.

The first thing most advisors will suggest is paying off any expensive personal debt such as credit cards. You might also be able to consolidate other personal debt into your home loan, allowing you to benefit from lower interest rates and fewer fees.

Investment strategy

The next step is to design your investment strategy. A good way to start is by looking at how your super balance is invested.

Your super fund probably offers a number of investment options, including balanced, growth, high growth, sustainable etc. and your fund’s website will usually have a page dedicated to these products, showing a breakdown (usually as a pie chart) of the investments. While it’s unlikely you’ll want (or have the means) to diversify as much as your fund does, they give a good picture of how different strategies work. For instance, a conservative option will show a heavier investment in cash and bonds, while a growth option will probably show a preference for Australian and international shares.

All good investment strategies have a level of diversity built in. That way, your investment risk is spread over different sectors, so that if one sector underperforms, your entire portfolio doesn’t suffer.

A sound investment mix would generally comprise both defensive and growth investments. These include:

Defensive – lower risk, lower growth potential

  • Cash (e.g. savings accounts and term deposits)
  • Fixed interest investments (e.g. government bonds)

Growth – higher risk, higher growth potential

  • Australian shares
  • International shares
  • Direct property (e.g. buying an investment property)
  • Indirect property (e.g. buying into a property trust)

Even within these investments, you may consider diversifying, for example, buying shares in a range of industries, or investment properties that attract different target markets.

Some investments, such as direct property require a high initial capital outlay, while others, such as term deposits and shares can be relatively inexpensive to get into. Your financial advisor will give you an idea of how you can best enter the various investment markets.

Once you establish an investment plan (preferably with the help of an independent financial advisor), it’s often useful to discuss it with your partner or family – especially if any of them are dependent on your income.

If it all seems too much don’t worry, each super fund has a default investment option which you are likely to be in if you haven’t selected an investment option(s). The default investment options vary between funds, however, they are usually called balanced as they sit between growth (more aggressive and riskier) and defensive (conservative and less risky) investment options.