Develop an investing plan
Your game plan
'Plan your life, live your plan.' Yes, it's a cliché. But when
it comes to investing your money, it makes a lot of sense to have a
Putting a plan together involves developing strategies and
choosing the right investments. The work you've already done on
goals, timeframes and risk will help to shape your investment
What to do before you make an
Be clear about your current finances
The starting point is getting an accurate picture of your
current financial situation. Work out what you own, what you owe
and your income and expenditure. Use the MoneySmart budget planner
to help you decide whether you can afford to invest and the asset
stocktake calculator to work out what you own and what you
Goals will become the backbone of your investment plan. Write
them down, with a timeframe for each goal. See our section on goals and risk
tolerance for more information.
Understand how much risk you want to take to achieve those goals
by reading our article on risk and return. Your plan will be
the pathway you take to achieve your goals. The course you take
will be shaped by where you are now and where you want to get
See how much you know about the risks of different types of
Short-term investment goals (1-3
In our case study about short term
saving, Gayle wanted to save a big enough deposit to buy a
house within 2 years. Here are some strategies that someone with a
short-term goal, like Gayle, could consider:
Once you know how much you can afford to save, set up a direct
payment to a high interest savings
account - either from your pay or from your account
after each pay day.
- Pay off credit cards and personal loans first to free up
additional cash to save
- Save a fixed amount each pay period - do a budget to ensure
your money is going towards the important things
- Choose a cash investment with good security and easy access
such as a high-interest savings account or term
Work out how long it will take to meet your savings
Savings goals calculator
Medium-term investment goals
David has just bought a new car for the first time in his life.
Over the last 20 years he's bought a few cars that have ended
up costing him a lot of money. David has decided he will buy a new
car every 5 years, about when the new car warranty expires. He
expects the changeover cost to be $25,000.
David has decided to:
- invest in a managed fund that allows him to get
started with just $1,000
- choose a balanced portfolio, as he wants better returns than a
bank savings account, without being too aggressive
- contribute $100 to the fund each week.
Because he has planned carefully, David knows that in about 5
years' time his investment will be enough to buy a new car. There
will also be enough to pay any capital gains tax he incurs as a
result of the investment. If markets are down at the time, he will
wait until they pick up before buying the car.
Long-term investment goals (7+
In our case study about capital
growth, Dominic wants to retire in 15 years. The most
tax-effective strategy available to him is to grow his super.
Dominic has his own business so he uses the profits to pump up the
balance of his super fund.
If you're considering topping up your super, ask how long you
have until retirement. If it's more than 10 years, a growth
investment option could provide for a better outcome.
Making extra contributions can be a great way to invest over the
High and middle-income earners can benefit from making
contributions out of pre-tax earnings - this is known as salary sacrifice.
Lower-income earners can benefit from making after-tax contributions that attract
A balanced or growth option will grow your money faster over the
long term, provided you can handle your balance taking a dive every
now and then.
If you are saving for a pre-retirement goal you will need to
invest outside super - a balanced or growth option in a
low-cost managed fund would be a suitable investment.
Planning for income in
In our case study on regular income,
Dave and Brenda are self-funded retirees. They depend on investment
income to cover all their living expenses. They use a mix of growth
investments (shares and property) to grow their capital and provide
a regular tax-effective income. They also have a mix of bonds and a
term deposit for secure regular income.
A good financial plan will outline your needs
and goals and set out the best strategies for achieving them. Once
you've developed your investment plan, your next challenge will be
to choose your investments.
Last updated: 07 Jun 2018