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Five mistakes Aussies make when building their wealth

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Australian investors are a savvy bunch, ever keen to educate themselves on optimal ways to grow their wealth.

But there are five common mistakes that people often make on their quest for more financial security. What are they and how can we avoid making them ourselves?

1. Not having a clear investment strategy

sponsored investing mistakes lack of diversification

Whether developed yourself or with assistance from a licensed financial adviser, a clear investment strategy can be crucial for anyone looking to build their wealth or ensure their savings can go the distance in retirement. Your strategy should consider your financial goals, timeframes, risk appetite and can help you determine how much of your investment portfolio should be allocated to growth or defensive investment options.

Growth investments, such as shares, direct property investment or via a managed fund, are generally more suited to long-term investors who are comfortable withstanding market ups and downs.

Defensive investments are generally considered lower risk than growth investments, as they focus more on generating income rather than growth. These options also tend to be more liquid, such as cash or fixed interest.

2. Not understanding 'good' and 'bad' debt

Some people are afraid of debt of any kind, believing it will hamstring their efforts to get ahead financially. However, debt can be used to help investors fast track their wealth creation strategy.

Good debt refers to any loan that moves the needle forward on your overall wealth. When you borrow to purchase an investment or an asset that appreciates in value, you are hoping to build wealth over the long-term.

Bad debt, on the other hand, can drain your wealth and potentially leave you worse off than you started. For example, when debt is used to purchase a car, which may decrease in value every day, or worse still, an unsecured debt such as a credit card.

3. Missing an opportunity to leverage extra payments and offsets

Some mortgage holders don't realise the power they hold themselves when it comes to paying off their home loan sooner, boosting their financial position along the way.

As a mortgagee, it could be a good idea to seek financial advice or educate yourself on the options available in terms of mortgage offset accounts and extra repayments.

4. Putting all your eggs in one basket

There are countless ways to invest your hard-earned money: you can buy shares, invest in property directly or through a managed fund, set up a self-managed super fund, or leverage your money as a developer.

One of the biggest mistakes an investor can make is putting all of their eggs in one basket, relying on a specific investment type or asset class to build their wealth.

When you adopt a long-term view, the majority of investment classes grow but throughout that period, there are peaks and troughs, where the value of each investment can grow or fall in significant amounts according to market conditions.

Therefore, astute investors aim to spread their risk by diversifying their investments - so that if one falters, another hopefully prospers, minimising the impact on their overall wealth.

5. Not doing your research or seeking professional advice

Successful investment management often comes down to investing in assets you understand. If you don't understand how they work, how can you try to predict what they may do in the future?

Doing your research and seeking advice from a licensed financial adviser before making an investment decision, can go a long way in ensuring the success of your portfolio and building your wealth.

Learn more about investing in Trilogy's range of mortgage trusts, diversified income funds and property trusts.

This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.

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Philip Ryan is the managing director of Trilogy and is the fund manager for Trilogy's trusts. A solicitor for more than 30 years, he has experience in commercial and corporate law. Philip is a Fellow of FINSIA and has qualifications in mortgage lending and financial services. His experience in the financial services industry dates back to 1986. Philip was a founding director in 1998 of the funds management entity which evolved into Trilogy.
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