investment options

How to choose an Investment

To invest well, you need to find investments that fit your financial goals, investing time frame, and risk tolerance. Get an overview of the different types of investments so you can find the right ones to reach your financial goals.

 

Types of investments and returns

Investments can be classified as defensive or growth investments.

 

Defensive investments

Defensive investments are lower risk. They aim to provide income and protect the capital invested. Defensive investments include cash and fixed interest investments.

They’re typically used to:

  • Meet short-term financial goals (up to two years).
  • Diversify a portfolio.

Defensive investments can include:

  • Cash (includes back accounts, high interest savings accounts and term deposits
  • Fixed interest ( includes government bonds, corporate bonds, debentures and capital notes.

 

Growth investments

Growth investments are higher risk and offer a higher potential return compared to defensive investments. They aim to give capital growth and some provide income (for example, dividends for shares or rent for property). But, the price of growth investments can be volatile over short periods of time.

Growth investments are typically used to:

  • Earn a higher rate of return (but this comes with higher risk).
  • Meet longer-term financial goals, five years or more.

Growth investments include:

  • Shares (Investing in a company. You get to vote on management and share in the profits)
  • Property (includes investing in residential and commercial property)
  • Alternative investments (include private equity, infrastructure, commodities, and other investments that don’t fall into the investment classes above.)

 

How to choose your investments

Before you invest, make sure you research your investment to understand:

  • How the investment works.
  • How it generates a return and the type of return expected (capital gain or income).
  • The risks involved for the investment.
  • The fees and charges for buying, holding, and selling the investment.
  • How long you should invest to receive the expected return.
  • Legal and tax implications of the investment.
  • How the investment will contribute to your diversified portfolio.

You can find this information in the product disclosure statements (PDS) before you make the investment.

 

For more on understanding, investments visit www. moneysmart.com.au or talk to our team about how to make your money work harder for you.

This article was sourced from moneysmart.com.au