Choosing the Right Investments: A Practical Guide

Investing isn’t one-size-fits-all. To make your money work well, you’ll need to select investments that align with your financial goals, timeframe, and risk tolerance. Below are key considerations and an overview of common investment types to help you get started.

1. Know the Two Broad Types: Defensive vs Growth

Defensive investments
These are generally lower risk, designed to preserve capital and provide income rather than big growth. They may be suitable if you’re closer to needing the money, or you feel uneasy about large swings in value. Examples: cash accounts, term deposits, fixed interest securities.
Key traits: lower risk of losing money, but likely lower returns and may not keep up with inflation.

Growth investments
These aim for higher longer-term returns but come with higher volatility (ups and downs). Suited for longer-term horizons where you’re comfortable riding out the bumps. Examples: shares, property, alternative assets.

2. How Timeframe, Risk Tolerance & Goals Influence What You Pick

• Timeframe: If you need the money soon (say in the next 1-3 years), lower-risk, more liquid investments make sense. If your goal is 5-10+ years away, you might lean into growth assets.
• Risk tolerance: How would you feel if the value dropped significantly in the short term? If it would cause you to panic or withdraw, you might need a more conservative strategy.
• Goal clarity: What are you investing for? Retirement, a home deposit, a dream holiday? The clearer the goal and the longer the timeline, the more flexibility you have.

3. Common Investment Options at a Glance

Investment Type	Typical Timeframe	Risk Level	Key Features
Cash & term deposits	Short (0-3 years)	Very low	Very stable but returns often modest and may be eroded by inflation.
Fixed interest (bonds etc)	Short to medium (1-5 years)	Low to moderate	Provides income, but some risk exists, and returns may lag inflation.
Shares (equities)	Medium to long (5+ years)	High	Potential for significant growth, but high volatility.
Property / real assets	Long (5+ years)	Medium to high	Capital growth + income potential, but liquidity and cost issues.
Alternative investments	Long-term	High	Includes infrastructure, private equity, commodities; high risk & complex.

4. Ask These Key Questions Before You Invest

From MoneySmart’s checklist:

• How does this investment work?
• What return do I expect (income, growth, or a mix)?
• What’s the risk and how long will I need to hold it?
• How liquid is it (can I access my money when I need it)?
• What are the costs (buying, holding, selling)?
• What are the tax implications for me?
• How will this investment help diversify my portfolio?

5. Decide Whether You’ll Invest Yourself or Get Help

You have two main paths:

• DIY investing: You pick and manage your assets, potentially saving on fees and staying in control.
• Using a professional/adviser or managed fund: You get expert input, but you pay for it. MoneySmart emphasises getting advice if you’re unsure.

6. Diversification Matters

A key risk-management strategy is diversification — spreading your money across different types of investments and within them (e.g., different sectors, regions) so you’re not overly exposed to one asset or event.

7. Keep Monitoring & Be Prepared to Adjust

Investing isn’t “set and forget.” You’ll want to:

• Keep track of how your investments are performing.
• Confirm they still align with your goals, timeframe and risk appetite.
• Understand how to exit or access funds if needed.

8. Final Thoughts

Choosing the right investments comes down to:

1. What you’re investing for.
2. How long you have.
3. How much risk you can tolerate.
4. How actively you want to manage things.

With these factors in mind — and with a sound understanding of the investment types and costs involved — you’ll be in a much stronger position to build and manage a portfolio that helps you meet your financial goals.

For more information and advice on investing, book complimentary initial consultation with our Fiducian Financial Adviser.

Source: https://moneysmart.gov.au/how-to-invest/choose-your-investments

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The information (including taxation) provided on this website is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.