Investing and Wealth Creation
Make the right financial decisions to grow your wealth
What is investing?
Understand when and how to invest
At FM Financial we establish how much money you have now, where it is (and isn’t) and what your plans are for the short, medium and long term and show you how to see your finances as a big picture, by helping you make the right financial decisions for both now and the future.
We also ensure you are adequately insured to cover the wealth you are accumulating.
FM Financial advisers will discuss and analyse your investment portfolio, and recommend the best balance for you using combinations of superannuation and non-superannuation strategies.
There are many investments available with differing levels of risk to cater for investors of different ‘risk profiles’, that is people who are more, or less, comfortable with risk than others.
It is absolutely essential that money is invested in a manner consistent with the level of risk you are comfortable with.
In a free consultation meeting we can take you through the process we work through with our clients, and the information needed to provide you with the appropriate level of insurance.
What is investment performance?
Investment performance looks at your investment in the market over time.
Investments can fluctuate, so tracking how they’re performing can help you make informed decisions and keep an eye on whether your goals are being met.
As part of your review, FM Financial can discuss the results of your investments and any changes you may choose to make.
Here are some of the more common types of investment
Shares
If you are unable to or unlikely to work again due to a disability, accident or illness you’re still financially secured.
If you want to invest in or purchase shares (aka equities or stocks) in Australian or international companies, you’re essentially buying a piece of that company, making you a shareholder.
Depending on how the shares perform, your investment may increase or decrease in value. There are a number of ways of investing and buying shares, including the following:
- Selecting the specific company you want to invest in and purchasing an amount of the shares equal to a value you choose.
- Initial public offerings (IPOs) – Buying new shares from a company that are on offer to raise capital for that company
- Exchange traded funds (ETFs) – Invest in a group of shares that make up an index, such as the ASX200
These are just some of the ways you can invest in shares, and deciding on the best method will depend on your financial goals and circumstances.
Working with your FM Financial Adviser can allow you to invest in shares with confidence it is the right financial decision for you.
Managed Funds
In a managed fund (also known as a managed portfolio) you invest in the fund and your money is pooled together with other investors. A fund manager then buys and sells assets, such as shares or bonds, on your behalf.
You don't own the underlying investments, you own 'units' in the fund. The value of the units in the fund will rise and fall with the value of the underlying assets. Some managed funds also pay income or 'distributions'. A managed fund allows you to access investment opportunities not always available to individual investors.
Your FM Financial Adviser can help you select managed funds that suit your investment plan and risk level.
Property
If you invest in property directly, whether it’s a piece of land or a building (residential or commercial) and rent it out as opposed to being an owner-occupier, you’ll generally receive a rental income, while potentially building equity in the property at the same time.
This is an area that can be assessed as part of your investment strategy alongside other investments.
Cash investments
These typically provide stable and low-risk income, but the income return is generally also lower.
Cash investments can be held with a bank where you can get regular interest payments (such as in a term deposit), but it may also be managed like a managed fund.
These may be a good option if you’re risk averse or working to a short timeframe or for the ‘liquid’ part of your portfolio.
Fixed interest investments
Governments and companies (both in Australia and internationally) can issue fixed interest investments (or bonds) for you to buy.
If you purchase a fixed interest investment you are basically loaning money to the issuer of that fixed interest investment for a certain period of time in exchange for regular interest payments.
At the end of that time (called the maturity date) your initial investment is returned.
There are several types of fixed interest investments which have different levels of risks.
Your Adviser can discuss options that are relevant to you if you believe investing in bonds is an area of consideration for you.
Common investment structures
Investments within these areas (cash, fixed interest, shares and property) can either be held individually, or via a number of common investment structures.
Some of the more common investments structures include managed funds (where your money is pooled with that of other investors), superannuation (including self-managed super funds), as well as alternative investment vehicles like exchange traded funds.
It can sound complicated but with the support of your FM Financial Adviser the best solution for your investment plan can be created.
What is diversification and why it’s important
When building or adding to an investment portfolio, you may want to spread your investments across a number of different asset classes.
This is known as diversification and follows the principle of ‘not keeping all your eggs in one basket’.
This can help to reduce your overall investment risk, so if your portfolio is well diversified, it means you’re less exposed to a single economic event.
So if one sector or asset performs badly, you won’t lose all your money.
Diversifying your investment portfolio is something that can be assessed as part of your reviews and any time you choose to buy or sell part of your investment portfolio.
How to start investing
The good news is, the majority of us are already investors through our super and bank accounts.
When looking to invest, your FM Financial adviser can get you started with the help of these steps:
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Work out your current financial standing, and how much can you afford to invest.
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Work out your goals and when you want to achieve them.
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Consider risks and implications for the short/medium/long term.
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Decide if you want to invest yourself or with help.
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Ensure you understand what you are investing in.
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Track the performance of your investments and adjust your strategy accordingly.
Make sure you read the product disclosure statement (PDS) for each investment product and that you understand the product’s key features, fees, benefits and risks.
You can ask the your financial adviser if you need help understanding any areas/
What to think about when investing
What’s your attitude to risk?
To determine how much risk you’re comfortable with, you first need to work out your goals and the timeframes you want to achieve these in.
For instance, if you’re in your 30s and your goal is to save for a comfortable retirement, you may be willing to take on more risk, as if your investment does decrease, you’ll have more time to potentially recoup your investment.
However, if you’re planning to retire in only a few years, it’s less likely you’ll take on the same level of risk as you won’t have as long to earn back your investment should there be a downturn in markets.
Your FM Financial Adviser can complete a risk analysis with you as part of your first meeting which will help understand your risk level and how to build your investment plan.
Investment timeframes and risk
Different investment products are suited to different investment horizons or timeframes according to the level of risk they carry, and the potential returns they could provide.
Short term is usually considered up to three years. For example, cash in a term deposit to save for a car or overseas holiday could be a short-term investment.
Medium term is considered between four and six years.
Long term generally refers to anything over seven years. Long-term investments can help you build your superannuation savings and save for your retirement.
As a general rule, investments that carry more risk are better suited to long-term timeframes, as these often come with greater short-term volatility, which means they can change rapidly and unpredictably.
However, being too conservative with your investments may make it harder for you to reach your goals.
What’s your attitude to risk?
Low-risk (often referred to as conservative) investments tend to have lower returns over the long term but can be less likely to lose money if markets perform badly.
Cash and term deposits are examples of low risk investment options.
Medium-risk (or balanced) investment options tend to contain a mix of both low and high-risk assets.
These options may be suitable for someone who wants to see their investments grow over time, yet are still wary of risk.
High-growth (or aggressive) options tend to provide higher returns over the long term but can experience significant losses during market downturns.
These types of investments are generally better suited to investors with longer time horizons who can wait out volatile economic cycles.
The amount you are taxed can affect the overall return you get from an investment. This can include income tax, capital gains tax and other taxes.
How your investment is taxed and the implication on your returns varies between different investment options and whether you hold the investment personally (ie in your own name) or through a different structure (such as your super fund).
Investing should be a part of a complete financial plan
There are many ways to plan for financial freedom in life -
We can help you with areas including:
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Cash Flow & Cash Flow Management
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Savings & Investments
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Estate Planning
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Aged Care
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Centrelink
Robert has been looking after my families investment portfolio for 17 years. His expertise and honesty has allowed our investments to grow very well and has given my parents piece of mind.
Peter R.