Seven steps to invest like a winner
Whether you are just starting out or are investing regularly, it is important to continually build on the knowledge and skills you have, because the financial markets, regulations, economic events and options available to you are constantly evolving.
The suitability of one investment can differ from person to person and therefore there is no one-size-fits-all approach.
You need to assess your own personal situation and then make an informed decision.
1. Risk profile
The most significant thing to think about is your attitude to risk, or your risk profile. This is your personal tolerance to accepting risk associated with investing.
Often when talking about investing, people will say, "What's your tolerance for losing money?" Your risk profile is influenced by a number of factors including your timeframe, your previous experience with investing, your current financial situation and, yes, your reaction to loss.
By completing a risk profile, you are able to gain an insight into your own tolerance, and then find an investment that has the right balance between risk and return that is suited to you.
Curious about your risk tolerance when it comes to investing? Just type 'Investment Risk Tolerance Assessment, Missouri University' into your search engine. This is a bit of a fun questionnaire.
What is your timeframe? You may have heard of "time in the market, not timing the market", because investments of any sort can be volatile.
Determining your timeframe is essential as it impacts the investments that are most suitable to you and the level of risk you can take on within your timeframe.
Liquidity refers to how easily an asset or investment can be sold. Take a house for example. Firstly, you can't sell brick by brick, so, therefore, you will have to sell the whole house. The timeframe of this is also quite long when you consider advertising
as well as settlement time. On the other hand, shares can usually be sold within a day, during trading hours.
You should also consider ownership and entity - are you going to own any assets or investments? Is it through companies or family trusts in your name? Or your kids' names? Is it superannuation?
Then, consider what you want from the investment. For example, with owning a home, the majority of us won't be renting out part of our home, so our homes are growth only. Shared bank accounts will be income only, as the value of your money grows by the income that it generates.
5. Tax implications
Often tax implications and ownership are closely related. Potential tax implications should be considered when deciding on the ownership structure. What are the tax implications?
There might be capital gains tax or income tax. Consideration should be given to the asset and if it will be income-generating, and therefore an ongoing income tax issue or growth-orientated, which could result in capital gains tax on the sale of the asset. The timing of selling also needs to be considered alongside tax considerations.
Investing should be seen as a long-term focus. Unless you are a day trader, it is not about getting rich quickly, but more about developing a long-term habit to increase your wealth.
Patience is also important, so you are not making impulsive decisions. This is particularly relevant if you're investing in shares or other assets, subject to market volatility. The last thing you want to do is make a hasty decision to sell something and make a significant loss, only to find the value increases again.
7. Your legacy
Think about when you want to spend that money.
How much do you want to leave for your children? Is it going to go into a family trust? Do you want to protect it?
There are a lot of questions to ask.
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