The golden rules of investing
A smart investor doesn't rely on good luck. Instead, they take
the time to consider their investment goals. Then they develop a
plan and choose investments that align with their needs and
Here are our tips to put you on the path to investing
Work out your needs and
If you're planning to invest, there are a few steps to take
before you jump in. Preparation is the key to success.
Are you ready to invest?
Make sure you're ready to invest by checking you have:
Develop a plan
If you have a financial goal in mind, it will be easier to
develop an appropriate investment plan. Think about what you want
and why, and set a timeframe to achieve each goal. Then you can
measure all investments against your plan.
See develop an investing plan to
find out how to create a realistic plan that meets your needs.
Understand risk and
While your investment goals are very important, you should also
consider your appetite for risk when you're shaping an investment
plan. In a 2014 study by ASIC on
financial behaviours, 28% of people said they had heard of the
risk/return trade-off but didn't really understand it.
Successful investors understand the types of risks that can
affect their investments and what they need to look out for. Find
out more about risk and return and goals
and risk tolerance.
Test your knowledge of risk and return, diversification and
A good way of managing risk is to spread your money between
different asset classes such as cash, fixed interest, property and
shares. This is known as diversification.
Diversification will leave you less exposed to a single economic
event, so if one business or sector you've invested in fails or
does badly, you won't lose all your money. For more information,
Borrowing to invest
If you are borrowing money to invest then you are taking even
more risk if your investments fail. Find out more about borrowing to
invest and negative and positive
Judging expected returns
To help you work out whether the returns offered by the
investment opportunity are reasonable, look at the expected returns
for other similar products. If the returns seem very high in
comparison, be very wary. And be aware that some investments that
appear to offer relatively modest returns can also be extremely
Our section on complex investments explains how
specific investments work.
Get to know the investment
before you invest
Before you jump into any investment,
carefully assess its suitability.
Read the product disclosure statement (PDS) for
each investment product and make sure you understand the product's
key features, fees, commissions, benefits and risks. Ask the
product provider or a financial adviser if you need further
Here are some other things to consider before you hand over your
Protecting your capital
How would you feel if you lost some or all of the money you
invested? Would you be able to recover or would you be in deep
If protecting your capital is important, then you need to find
out where you stand if something goes wrong with the investment.
Words like 'safe' and 'guaranteed' mean nothing if the investment
fails, and the fine print says you'll be the last on the list of
Accessing your money
Check to see if there will be heavy fees or penalties to get
your money back before the end of the investment period.
If flexibility is important, think about investing in other
financial products that allow you to access your money when you
Know what your money is being used for
If you know what your money will be used for, you will be better
placed to decide how risky the investment is and whether you're
comfortable putting your money into it.
If you're investing in a company, find out what the company
does, how long they've been in business, and how successful they've
been with similar projects in the past. See prospectuses for
more information about assessing an investment.
Consider the tax implications
An investment is 'tax-effective' if you end up paying less tax
than you would have paid on another investment with the same return
While lower tax can help your savings grow faster, you should
never base an investment decision on tax benefits alone. See make tax
work for you for more information.
Monitor the investment
Even with careful planning, you can still get caught out, for
example, economic conditions can change and company profits can
vary from year to year, so it's important to keep track of your
Look out for warning signs
There's no fool-proof method of spotting losses in advance.
However, sometimes there are warning signs that an investment is
going south. See keep track of your
investments to find out the warning signs.
Market and economic conditions can change rapidly - but a
panicked reaction can often make things worse. Some investors try
to time the market and fail. If your strategy is sound, and the
investment is long-term, stay with it.
Investment scams are often so professional, slick and believable
that it's hard to tell them apart from genuine investment
opportunities. See our tips for how to spot investment
Smart investors don't rush; they prepare, plan
and then monitor their investments. Make sure you're clear about
why you're investing and only invest in products you
Last updated: 31 Mar 2017