Consider what you want to achieve
It’s easier to make confident investment choices when you know what you’re looking to achieve. Ask yourself what you are saving for, how much risk you’re ready to take, and whether your priority is growing your savings or generating income.
Planning and budgeting
Planning is the key to investment success. Before you make an investment, make sure you have cash savings set aside for a rainy day. Consider budgeting for three to six months of outgoings, perhaps more if your income is unstable or if you’re the main family breadwinner. This safety net will allow you to take more risk with the rest of your savings and to invest with greater confidence.
Why are you saving?
Everyone’s investment priorities are different. Yours might be saving for retirement, building a nest egg, or saving towards life’s essentials and pleasures. Knowing what you are saving for will help you decide how long you may need to invest for, how much risk might be right and which investment choices might suit you best.
Are you looking for growth or income?
Depending on what you are saving for, you can choose to invest to achieve long-term capital growth, or to generate a regular income—or a combination of both. The key is to select the right balance to help you achieve your own individual investment objectives.
Investing for growth
If you’re looking to protect your money from inflation or to build up a nest egg, you will need to seek out investments that can help grow your savings over time.
Investing for income
Many types of investment can help to supplement your income or cover regular payments. You can also reinvest income to boost long-term capital growth.
Investing for income and growth
Some investments aim to achieve both growth and income, which may appeal if you need a regular payout while also wanting to benefit from the potential to grow your money.
How much risk should you take?
When you invest, the amount of risk you are taking refers to the level of uncertainty in the outcome of your investment.
All investments carry a degree of risk to your savings. Generally, the more risk you are prepared to take, the more your investment has the potential to grow, but there are no certainties with investments and taking a higher risk does not guarantee a higher return.
The level of risk you can take will also depend on your investment horizon. Your investment horizon simply means how long before you want to have access to your savings. The longer you can invest for, the less impact short-term volatility will have on your investment and the more risk you can afford to take.