The Seven Golden Rules Of Investing ...

This section describes some of the basic rules of investing. Please be aware that these are provided for general information and are not specific advice directed at any single person or set of circumstances.

To show how important getting the right risk reward profile can be; you should consider that $10,000 invested for 10 years at 4% compounding will grow to $14,802, but the same $10,000 compounding at 8 % for 10 years will become $21,589. The catch is that higher performing investments are more likely to show higher investment volatility or risk, and so are not suitable for all investors. Finding your correct investment risk profile means achieving the highest returns you can while still sleeping soundly at night.

It is important to fully understand the various risks associated with investing ...

Six common investment risk profiles are identified below. By reading through these you can gain an idea of which type of investor you may be and which investments which may suit you.

Please remember that if you take a variety of different investments you should regularly check how each is doing because growth in one area or losses in another could push your investments into a lower or higher investment risk profile than intended. If keeping track of investment funds seems like too much bother, there are many services available on the Internet that can assist. You may visit the Australian Financial Services Directory to locate such services.

Conservative
Conservative investors seek:

• a short term investment.
• a long term investment with a secure income stream.
• minimal growth on the investment but high security.
• an investment which will protect the capital invested even if it occasionally earns less than inflation.
• higher returns than a bank but with high security.

Conservative investors mostly use cash, fixed interest or capital guaranteed investments. Those seeking an income stream may consider an allocated pension. A mortgage trust may also be appropriate.

Cash and fixed interest investments will deliver low investment risk and low relative investment returns. These investments are unlikely to carry an investment loss for more than three months.

Capital Secure
Capital secure investors seek:

• a stable income stream.
• modest growth on the investment with good security.
• to slightly out perform inflation.

Capital secure investors often use premixed capital secure investments or a mixture of specialist investments with approximately 75 % of funds in cash and fixed interest, no more than 20 % in shares, and around 5% in property. Those seeking an income stream may consider an allocated pension or mortgage trust.

A capital secure investment should grow slightly faster than inflation and is unlikely to produce an investment loss over a one year period.

Moderate Growth
Moderate growth investors seek:

• moderate growth on their investment with moderate risk.
• some investment risk in order to clearly out perform inflation.
• a moderate income stream.

Moderate growth investors often use premixed balanced or capital stable investments, or a mixture of specialist funds with not less than 30% of funds in cash and fixed interest, up to 60 % in shares and around 10 % in property. Those seeking an income stream may consider an allocated pension or mortgage trust.

A balanced investment should grow faster than inflation and should not normally be invested for less than 3 to 5 years.

Growth
Growth investors seek:

• a high level of investment growth but with some diversification amongst different asset classes to help moderate investment risk.

• a medium to longer term investment which should grow considerably faster than inflation.

Growth investors should be prepared to endure periods of high investment volatility and often use premixed growth or market linked investments, or a mixture of specialist investments with not less than 60% in shares. Those seeking an income stream should consider carefully whether a growth investment strategy is appropriate in view of the high volatility which should be expected.

A growth investment should grow much master than inflation and should not normally be invested in for less than 5 years.

High Growth
High growth investors seek:

• to maximise investment growth over the long term with little or no regard to frequent and significant investment volatility.

High growth investors often use share or other specialist growth investments. Those seeking an income stream would normally be ill advised to use a high growth investment strategy.

High growth investments should grow much faster than inflation and should not normally be invested for less than 5 to 8 years.

Specialist Investors
Specialist investors seek:

• exposure to a particular type of investment

Specialist investors often use specialist investment funds such as share, property, fixed interest, or cash funds with regard to the investment time horizon of each. Some specialist investors use gearing to enhance there investment.

• Property investors who desire liquidity often use property trusts which invest in listed property holdings.

• Investors seeking to legally and property manage their tax liability often use imputation trusts.

• Investors seeking an income stream often use allocated pensions.
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