One of the most important points in accumulating wealth in almost any type of investment is to start as early as possible. Selecting the right time to invest is not important – time spent in the investment is critical for success. This combined with the compounding power of regular investment will help you reach your goals faster.
By making the right investment decisions you can achieve either or both of the below:
• Capital Growth: Building wealth and Protecting your money
• Income Generation: Paying an income
To invest successfully you need to establish investment goals. Having a clear understanding of your goals will help you select the most appropriate investments to achieve them.
There are many reasons why you may choose to become and investor. You may be saving for an overseas holiday, a deposit for a home or for your children's education.
Setting realistic investment goals, timeframes and amounts required to achieve these goals is a good start. It is important to speak to a financial planner when considering an investment plan to ensure you are on track to achieving your investment goals.
Risk and Return
Investment risk means the potential for your investment return to fluctuate - go up or down - in value from year to year.
All investments carry some risk, but some carry more than others. If you want higher returns, you need to be comfortable with accepting a higher level of risk.
The return on your investment simply means the amount of money your investment earns, or loses. This return can either be in the form of income in the form of investment earnings, or from growth in the value of your investment, as with the value of shares and property. This increase in value is also known as capital growth.
It's important to remember that, just as the value of investments can increase, they can also decrease or earn negative returns from time to time. The trade-off between risk and return for each of the five different asset classes is illustrated in Figure 1.
As you can see, shares carry the highest level of risk of all the asset classes, but they also tend to provide the highest returns over time. At the other end of the scale, the risk associated with cash investments tends to be the lowest of the asset classes, but so is the expected return.