Choose your investments

Build your portfolio

Your mix of investments should be based on reasonable returns over your desired timeframe and at an acceptable level of risk.

Short-term investments (1-3 years)

A short-term investors should be looking for investments with:

  • Risk - no risk of losing your money
  • Volatility - very low risk that the value of your savings will drop
  • Expected return - 4-6% per year (long-term average return)

Suitable products could be:  

  • Online savings account (if you could need the cash at any time)
  • Term deposit (if you know how long your money can be locked away). Don't let it rollover automatically as it may not be in your best interests

These products could be suitable because the money is available when you need it but they still give a reasonable return.

Ask yourself:

  • How quickly will I be able to get my money when I need it?
  • Is it easy to add more savings?
  • Am I getting a good interest rate?

Case study: Gayle wants easy access to her cash

case-study-short-termGayle's investment goal is to buy a home within 2 years. She has moved back in with her parents and is saving as much as she possibly can towards a deposit.

Medium-term investments (4-6 years)

Medium-term investors should look for investments with:

  • Risk - low to medium-level possibility of losing money
  • Volatility - medium; capital value could go up or down 20% in a year
  • Expected return - 6-7% per year (on average over 10 years)

A suitable product could be a balanced investment option in a managed fund. If your timeframe is closer to 4 years, a more conservative investment option may be suitable.

This could be suitable because:

  • It is expected to provide better returns than a bank account over the same period
  • Any short-term periods of negative returns should grow back over the period that you are investing
  • It is easy to add money to the investment

Ask yourself, can I cope with some risk in order to let my money grow over the medium term?

Case study: Jen saves for her daughter

case-study-medium-termJen invested money in a managed fund so her daughter would have a small nest egg when she finished high school.

Long-term investments (7 or more years)

Long-term investors are looking for investments with:

  • Risk - high, with negative returns expected 4-5 years out of 20
  • Volatility - high; capital value could go up or down by 40% in a year
  • Expected return - 8-8.5% per year (on average over 10+ years)

A suitable product could be a growth or high growth option in a superannuation fund or managed fund or direct shares.

This could be suitable because:

  • It is expected to provide long-term returns better than a bank account
  • Your capital should grow over time making up for short-term periods of negative returns

Ask yourself, what's the best way to make my money grow over the long-term and will I be too stressed by short-term fluctuations?

Case study: Dominic wants to grow his capital

case-study-long-termDominic is using super to save for his retirement and has a 15-year plus timeframe.

Retirement investments

Retirees need investments with:

  • Risk - moderate, expect negative returns 2-3 in every 20 years
  • Volatility - medium
  • Expected return - 6-8%

A suitable product could be a market-linked account-based pension (balanced portfolio) or a diversified portfolio of balanced and growth managed funds.

This could be suitable because it provides a mix of investments to ensure income stays regular but capital also grows over time.

Ask yourself:

  • Are my investments diversified enough so I feel secure about getting regular income but can still see my capital growing over time?
  • Am I comfortable with short-term fluctuations in the value of my investments?

Case study: Dave and Brenda need regular income

case-study-regular-incomeDave and Brenda, like many self-funded retirees, rely on income from their investments to cover all their living expenses. Because of their age they don't have the capacity to recover from capital losses. At the same time they need solid returns so their capital will last for many years.

Your investment options

Here are the typical investment characteristics of different types of investments options.

Different funds may have different names for their portfolios and asset allocations may not be the same as ours. Read the fund's PDS to find out how money will be allocated for each investment option.

Investment mix Typical characteristics

Growth

darkblue-legend Around 85% in shares and property
lightblue-legend The rest in cash or fixed interest

Growth-piechart

Investment: $10,000 after 5 years = $13,500

Expected return: 6.2%
(gross returns before fees, taxes and other costs)

Volatility: High volatility-high

Expect a loss: 4-5 years in 20

Balanced

darkblue-legend Around 70% in shares and property
lightblue-legend The rest in cash or fixed interest

Balanced-piechart

Investment: $10,000 after 5 years = $13,200

Expected return: 5.7%
(gross returns before fees, taxes and other costs)

Volatility: Medium volatility-low

Expect a loss: 4 years in 20

Conservative

darkblue-legend Around 30% in shares and property
lightblue-legend The rest in cash or fixed interest

Conservative-piechart

Investment: $10,000 after 5 years = $12,300

Expected return: 4.2%
(gross returns before fees, taxes and other costs)

Volatility: Low volatility-low

Expect a loss: 0 years in 20

Cash

darkblue-legend 100% in deposits with Australian deposit-taking institutions

Cash-piechart

Investment: $10,000 after 5 years = $11,500

Expected return: 2.9%
(gross returns before fees, taxes and other costs)

Volatility: Very low volatility-low

Expect a loss: 0 years in 20

Check out the investment

Make sure you have enough information to understand how the investment product works and identify the associated risks.

See if you can describe how the investment product works to a friend.

Find out:

  • How your money will be invested
  • How the product will generate returns
  • How the returns will be paid to you

If you don't understand it, don't invest in it.

Here are some checks you should do:

It's best to stick with mainstream, reliable, tried and tested investments.

Check fees and charges

What are the commissions, fees or other charges? What is the interest, if you're borrowing to invest? All costs reduce the return on your money. Know what you're buying and how you're paying for it.

Check legal and tax issues

Your financial and tax situation may be different from your neighbour's or workmate's. You may need to get professional advice about how an investment will affect your particular situation. A solicitor can explain your legal obligations and an accountant can explain tax issues.

See make tax work for you for more information.

Now that you've chosen your investments, your final step is to put some processes in place to keep track of your investments.


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Last updated: 28 Jul 2016