Before we start thinking where to invest and how to invest, we need to ascertain what type of investor we are. Investors can basically be of three types conservative, balanced and aggressive.
A conservative investor is someone who does not want to take risk with their savings and seeks to preserve an investment portfolio’s value by investing in lower risk securities and is prepared to accept lower returns to protect the value of your capital.
A conservative investment strategy is one that carries the greatest likelihood of preserving the purchasing power of one’s capital with the least amount of risk.
A balanced investor is someone who is willing to consider assets with comparatively higher volatility in the short term to achieve capital growth over the medium to longer term.
A balanced investment strategy is a somewhat aggressive strategy, and is suitable for those investors with a longer time horizon (generally over five years), and have some risk tolerance. These portfolios are generally divided equally between equities and fixed-income securities.
An aggressive investor is someone who is investing for the highest possible returns, have a high risk tolerance and have a longer time horizons.
An aggressive investment strategy attempts to grow an investment at an above-average rate compared to its industry or the overall market, but take on additional risk. As the aim is capital growth, a higher percentage of the assets in equities rather than in safer debt securities.
Following graph shows the relationship between the Risk and Returns:
There are four main asset classes where investors can invest their savings. These are Cash, Fixed Interest Securities, Property and Equities.
Cash and Fixed Interest Securities are regarded as Defensive Investments as their focus is on generating income. They provide a stable and low risk income in the form of regular interest payments.
Property and Equities are considered as Growth Investments and their focus is on capital growth and generating income. Property has higher risk than investments in defensive asset class but have less risk than equities. It is less liquid than other asset classes resulting in a higher recommended minimum time frame. With Equities, returns are usually associated with capital growth or loss and income through dividends which may be franked. It is the most volatile asset class but over long periods of time, on an average, it may achieve higher investment returns.
There are other investments also available in the market like Gold and other commodities, Collectibles, Private equity, Forex etc.
A successful investing involves some calculations and analysis. At ABWMS, the various steps involved in investing are:
- Ascertain the saving potential of the individual by making a cash flow, income and expenditure statement.
- Ascertain the risk profile of the individual.
- Consider the investment structure which might best suit the individual
- Research the products shortlisted and finalise the one which meets the needs of the individual
- Invest to meet the goal and objectives of the individual
- Regular on-going review to keep track of the investments and update the client on the progress.
It is important that we take the holistic approach while preparing and managing the portfolio else we may not be able to meet the goals and objectives of the individual.
A successful financial strategy has two important components – the underlying investments; and the strategy which will help the individual to manage tax, build wealth and, over time, move the individual towards a position where they can retire. It is important to evaluate these personal financial strategies in light of the current market volatility.
Some of the important strategies that we at ABWMS consider are:
A. Dollar Cost Averaging – Investing regularly over time
B. Repaying non-tax-deductible debt
C. Borrowing to invest
D. Salary sacrificing to superannuation
E. Transition to retirement strategy
F. Income planning in retirement
At ABWMS, we understand that difficult investment times make it more important that the underlying personal finance strategy is working. Settling on a strategy, and understanding how it works, will help in working through this current difficult market.
To review and streamline your investments, Contact us
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