What most first-time investors get wrong
It's not always about picking the wrong asset. Shelby Clark, executive director at GPS Investments, says it can be easy for new investors to misunderstand risk, liquidity or personal time horizons.
It's always great to see Australians get started with investing. It can be the beginning of a rewarding journey of wealth creation.
But as a newcomer to investing there's a lot to weigh up, and it can be easy to go astray with the basics.
Here are three common mistakes I see among rookie investors:
1. Chasing returns without assessing risk
Investments that promise 'a quick buck' can seem appealing.
The catch is that a fast return typically involves far higher risk, and that can mean a greater likelihood of losing some or all of your money.
In truth, successful investors harness the power of compounding returns to build wealth over time.
This makes sense because when you play the long game, you can afford to take on less risk, and let compounding do the hard yards on your behalf.
2. Failing to understand how liquidity works
'Liquidity' refers to how easily an investment can be converted to cash.
As a guide, savings accounts, where your cash may be at call, are very liquid. By contrast, a rental property can be very illiquid. It can take weeks for a place to sell - and change hands - before you can pull cash out of the investment.
Rookie investors often want to get in and out of an investment quickly.
The thing is, investing isn't a race.
It's about achieving short, medium and long term personal goals.
That's why it's important to spread the love across investments with varying degrees of liquidity.
This way, you can access funds when money is needed, while still leaving the bulk of your portfolio working hard to grow wealth.
3. Assuming you have the time and skills to beat the market
Life is complex enough without the extra burden of actively managing your investments in the hope of outperforming the market.
The reality is that most of us lack the time and skill to do this.
It can make far better financial sense to rely on a professional investment manager - one who specialises in a particular market, has the experience to understand where the latest trends are heading, and who makes informed decisions based on the best interests of investors.
An experienced fund manager help investors avoid these mistakes
How does GPS Investments help first-time investors avoid these mistakes?
First, we know the market risks and actively work to minimise them.
Our Arkus Fund is underpinned by secured mortgages on boutique property projects (low-rise apartments and townhouses) in the south-east Queensland growth corridor.
Next, our mortgages have a maximum loan-to-value ratio (LVR) of 70%.
This gives us a 30% buffer. It means the market would need to drop 30% in 18 months (the typical term of our loans) before the fund would be impacted. For the record, this has never happened.
The upshot is that Arkus has a lower risk profile than many investors anticipate.
When it comes to liquidity, we get it: Flexibility matters.
With Arkus your money isn't locked away. With monthly distributions and access payouts, our investors have regular access to their money.
In addition, we offer solid returns - currently 6.50% per annum, with zero fees (our borrowers pay fees - not our investors).
And because we believe all Australians should be given a chance to reach their full potential as investors, you can get started in Arkus for as little as $1.
It could be the start of your path to successful investing.
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