Investment opportunities abound for those with disposable income. Loved ones may suggest ventures for future growth, but key lessons in wealth-building remain vital.
People with any amount of disposable income may have some ideas of where to spend it. Some loved ones could suggest investing it in a venture of sorts to let that money grow for the future. While it may be notable to build more wealth through various legitimate avenues, there are still cardinal lessons to take to heart.
Long-term mapping
Investment is often seen as a long-term plan, especially when you have some financial goals you want to achieve after a set period of time, such as capital for a future business but want to grow the money first. Before taking the leap, try listing your net wealth and identify if you have any spare cash that can be used for your prospective investment.
Cyclicals
Investment markets are known to work in cycles. There will be some good points and bad times depending on how a business progresses and the industry changes around them. Some cycles may even go into term periods, from three years to as long as 20 years.
Intelligence collection
A strong amount of background research is critical to learning whether the investment would be beneficial to you or become a money pit. In line with this, you have to find out elements such as how the business operates, the source of its funding, the nature of the cash flow and the level of dividends. Any investment agreements should have properly defined fact sheets, product disclosure statements, and target market determinations; if they are unclear to you, have a friend skilled in investment businesses, an ASIC-accredited finance advisor or a corporate solicitor explain them to you. Take any sales talk at face value and dig deeper.
Stay the course with the superannuation
Every Aussie knows that part of their paycheck goes to the superannuation account. Your chosen super provider will have a set of investment options and associated fees to learn. However, do not attempt to withdraw anything from the super account just to invest in other areas, as it might derail your retirement plans down the road. The ATO also has a set of conditions where early withdrawal may be possible subject to tax.
Ignoring doom and gloom
The events of the past three years often lend to some wild and maybe insane predictions of the future leading to certain investments being touted. You must calmly approach these offers of new investments and dismiss any pessimistic stories attached to them. The same thing is also true in apparently superlative statements with “great” as an adjective, which gives you more reason to doubt.
Dealing with the taxman
Even the tax authorities can get a slice from your investments. Your tax return should always include variables such as rent, interest, dividends and capital gains from assets including property and shares. They will show how much you paid for an asset and how much you sold it for whether at a loss or a profit. All records of tax returns must be preserved for five years.
Complacency kills
Even when your investment portfolio is doing ok, that’s not a reason to rest on laurels, as anything can still happen. If you want to make some changes to your portfolio, find a basis in what’s going on in the market then act accordingly. Some investment specialists say that short-term goals can be a tricky fish to catch.
Diversifying
Ask any prominent venture capital investor about how their success story came to be and they may have a common thread – they diversified their investments. Simply put, diversifying is spreading out your investment portfolio across various products and industries you are interested in. Each of those investments will have their own risk factors. That way, if one asset has some losses, not all of your money will be lost.
Learning compound interest
Some investment professionals may underline going for ventures that offer compound interest, which means any small investment may have the potential to build up value over time. Residential property may be a classic example of investments building up in value long-term; Australian Bureau of Statistics (ABS) and Real Estate Institute of Australia (REIA) for example, notes an 11 per cent per annum increase in value starting from the early 20th century.
Not just cash only
Do not just focus on cash-based investments such as savings accounts and term deposits. Some experts say that while they are notably secure investments, they offer very low annual interest rates and are vulnerable to inflation, the worst case of which is the hyperinflation in Germany during the Weimar Republic.
Risk and return
Every investment can be gambling – they carry a certain level of risk and potential returns. Some investment experts peg that in terms of risk versus return, cash and bank deposits carry the lowest risk and meager return. On the other side of the spectrum, private capital assets and equities carry the most risk but bigger returns if things turn out well or the investor knows the best way to manage them.
One example of risk and return is the digital payment sector. Although such methods were not given much attention for most of the previous decade, the pandemic increased the impetus as people sought more convenient ways to pay for their needs without compromising other people. This in turn led to reduced dependence on hard cash for certain societies. The World Bank’s Global Findex 2021 report, in particular, identified 57 per cent of people in developing economies using digital payments, compared to 35 per cent in 2014.
It is worth it to save money for the future and build up on that wealth. You will also lose much stress that usually comes with wondering where to get the money for all your needs.
DISCLAIMER: This article is for informational purposes only and not meant to be official financial advice.
