SMSFs: What happens if you exceed your super caps
23rd April 2024
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Helpful tips on investing
Before you begin investing, here are a few helpful tips:
1. Before investing, consider paying down non-tax-deductible debts, such as credit cards or personal loans.
2. Have surplus savings for emergencies: a rule of thumb is to put aside three months of expenses, so you won’t need to sell an investment in a hurry.
3. With the help of a financial planner, develop an investing plan – define your financial goals, risk tolerance and investment time frame.
4. Talk with your financial planner about different asset classes – understand the associated risks and returns and how they can help you reach your financial goals.
5. According to your plan, diversify your investments – spread your money across and within asset classes to lower your overall portfolio’s risk.
6. Engage a financial planner to help you keep track of your investments – review them together regularly and make sure you’re on track.
7. Make an appointment with Blue Summit Financial Solutions today and start your investment journey.
Foundational Principals of Investing
Here are a few foundational principles to be a successful investor and minimise costly mistakes.
Begin investing early
Starting your investment strategy early is the number one method for building wealth, care of the power of compounding.
Add to your investment regularly
Adding to your investment often is just as important as starting early. Being disciplined with your investments and adding to them regularly helps maintain your focus and keeps you on track with your plan.
Invest enough
Too many people think that investing is like magic. Put dollars in, and thousands will pop out. Unfortunately, it is not as simple as that. The reality is that reaching your long-term financial goals always starts with saving enough today. Saving for a primary goal like a house, education, or retirement requires significant thought and decision-making. It is essential to understand precisely how much you need to save today to reach your goal in the future. Put simply, the more you save today, the less you will need to save in the future to achieve the same goal as someone who invests later over a shorter period.
Have a plan
Even seasoned investors can become anxious and focused on short-term movements when markets turn volatile. This can lead to emotional decisions made in haste, especially when trying to time the markets.
With a well-structured plan in place and the guidance of a financial planner, you can confidently stay committed to it. And the best part will be that you’ll know that the daily market fluctuations will likely have little impact on your longer-term objectives or the strategy designed to get you there. A plan will give you peace of mind when you need it the most.
Don’t forget that events will always affect equity markets in the short term. But, historically, over the long term, markets have moved ahead.
See Blue Summit today to help you create your investment strategy. Start your journey towards achieving your goals. The sooner you start, the easier it will be!
Types of investment
Cash investments
Typically, these investments include bank savings accounts or term deposits. They usually earn lower interest but are considered a lower-risk option for those with a shorter investment time frame or who are particularly risk-averse.
Fixed income or fixed interest investments
These investments are also called bonds. Typically, they have a set investment time frame and are issued by governments and companies. Bonds have more risk than cash; however, they tend to be on the more conservative side and are used to diversify your portfolio.
Direct shares
By purchasing shares (also known as equities or stocks) in a company, you buy a small portion of that company, making you a shareholder. If the shares grow in value, so does your investment’s value. You will receive a dividend if the company pays a percentage of its profits. Of course, if the share price falls, then so will your investment. It is also worth noting that you may not receive any dividends.
Managed Funds
This type of investment pools money together with other investors on your behalf by a fund manager. These investments can be focused on a single asset class (for example, an Australian share-managed fund), or they can be diversified across several asset classes from international shares to property and fixed income. A benefit of using managed funds is that you can access markets and a level of diversification that can be difficult to obtain as an individual investor. As investment returns are linked to market movements, you won’t necessarily always generate positive returns.
Exchange-Traded Funds (ETFs)
This type of investment can be traded on a stock exchange. ETFs are generally considered ‘passive’ funds as they aim to track the index. Hence the value of your ETF will go up or down in line with the index.
Investment Bonds
This is also known as an insurance bond and is like a managed fund in that your money will be pooled together with other investors. It also has an investment manager overseeing the day-to-day investment decision. The primary difference with an investment bond is the way they are taxed. This option is generally most suited to the long-term investor (10 years plus).
Annuities
These used to be a popular choice for retirees as they generally provide a regular fixed payment for a set period or the remainder of your life. Your income depends on how much you initially invested and various actuarial calculations.
Real Estate Investment Trusts (REITs)
A property fund listed on a stock exchange is called a REIT. Investors can purchase units in the REIT, and they operate similarly to a managed fund. The assets may include commercial, industrial, and retail property.
Environmental, Social and Governance (ESG) Investing
Environmental, Social and Governance Investing is becoming increasingly popular with investors. Shareholder activism is encouraging companies to be transparent and socially responsible. An example of this could be during the Russian invasion of Ukraine. Many companies pulled out of Russia, citing a commitment to Ukrainian democracy.
Unfortunately, there is no universal set of rules or principles by which ESG criteria are determined. Some companies are starting to release ESG reports. Third parties have also developed ESG ratings to provide to ethically minded investors. There is no right or wrong way to invest ethically. The main idea is that you are comfortable with the businesses you support and are confident in their ability to create long-term value.
