The golden rules of investing
Smart investors don't rely on good luck; they plan, research and
understand their investments and how these fit with their financial
To mark World Investor Week (1-8 October 2018), we offer
the following practical tips to help you on the path to smart
Work out your financial
If you're planning to invest, being well prepared will improve
your chances of success. Think about your investment goals and
where you want to be in the future.
Ideally, you will have at least one financial goal in mind;
however, smart investors think about short, medium and long-term
goals. Allocate a timeframe to achieve each goal. To find out more,
read our tips on financial goal setting.
Once you have set your goals you'll need to develop
an investment plan that meets your needs and is achievable.
Build your investing profile.
Use our investor toolkit
Decide how much risk is
best for you
Setting investment goals is important but you also need to
consider your appetite for risk. A study by ASIC on financial
behaviours found that 27% of people had heard of the risk/return
trade-off but didn't really understand it, and 39% hadn't heard of
the risk/return trade-off at all.
Investments that carry more risk are usually better suited to
long-term investments because potentially higher returns come with
greater short-term volatility. On the flip side, being too
conservative with your investments may make it harder to reach your
Aim to match investments to your goal timeframe, but make sure
you are comfortable with the types of risks associated with each
investment. Find out more about risk and return.
Judging expected returns
To help you work out whether the returns offered by the
investment opportunity are reasonable, compare them to the expected
returns of similar products. Be wary of returns that seem high
compared to similar investments. Also be aware that some
investments that offer relatively modest returns can also be
Check your investment is
It is important to only deal with people and businesses that are
licensed so you're better protected if things go wrong and can
access free dispute resolution services.
Checking investment schemes
You can use ASIC's Professional Registers to check whether
a company or investment scheme is licensed by ASIC. ASIC lists
allow you to check basic facts about companies and investment
schemes, such as whether they hold an appropriate
Be aware that a licence from ASIC does not mean that ASIC
endorses the company or investment or that you can't incur a loss
from dealing with them. It means the business has met basic
standards such as training, compliance, insurance and dispute
resolution. Checking ASIC's databases should be only one of the
many checks you do before you invest.
Checking financial advisers
If you are planning to use a financial adviser you can check
they are licensed on ASIC's financial advisers
register. The register will also tell you where an adviser has
worked, their qualifications, training, memberships of professional
bodies and what products they can advise on.
Get to know the
Before you jump into any investment, you'll want to know:
- How is my money being invested?
- How well has the investment performed compared to similar
investments over the last 5-10 years?
- What are the fees (including up-front and ongoing fees,
performance-based fees and exit fees)?
- Is there is a ready market if I need to exit the
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 clarification.
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. Find out
works with investments.
diversification to spread your risk
A good way to manage risk is to spread your money between
different asset classes, such as cash, fixed interest, property and
shares. This is known as diversification.
It's also a good idea to diversify within asset classes, for
example a share portfolio may hold shares across different sectors,
such as banking, resources, healthcare and infrastructure. A
diversified property portfolio could include domestic, commercial
and retail property.
Diversification reduces your overall investment risk and leaves
you less exposed to a single economic event. So if one business or
sector fails or performs badly, you won't lose all your money.
If you have a smaller amount to invest or don't want the
responsibility of choosing individual investments, you might
consider an exchange traded fund or managed fund
that invests in a broad range of assets.
Watch out for get rich quick
schemes and investment scams
Investment scams can be so professional, slick and believable
that it's hard to tell them apart from genuine investment
See our tips on how to spot an investment scam and remember scammers
usually come to you. If you are being offered an investment
opportunity by a person or company that you have not contacted, ask
yourself: where did they get your details and why are they
contacting you with an investment opportunity?
Check out our tips on avoiding scams and get familiar with the
used by scammers so you can better protect yourself.
Smart investors don't rush; they plan,
research and choose their investments carefully. Clarify
the reasons why you're investing and only invest in products you
Last updated: 15 Oct 2018