Investment Basics
Starting an investment portfolio is an investment in your future. Whether you want to supplement your income to improve your lifestyle, or save for retirement, it’s important to start planning now. Getting started is the hardest but most important step.
Managed funds
Managed Funds pool together money from many investors and then invest the total amount in a mix of assets including shares, listed property trusts, bonds and cash.
By investing in different mixes, a portfolio can be designed to meet your needs. Managed funds can be used to invest a lump sum or to invest smaller amounts by regular payments.
To help minimise risk, you can spread your investment across several asset classes. If you wish to maximise your growth over the longer term, you can choose more volatile investments such as shares.
Benefits of investing in managed funds include:
- you only need a small investment to start
- they are professionally managed. A fund manager carries out day-to-day administration and investment research.
- you can invest a single deposit or establish a regular savings plan
- they provide investment choice
- they give access to international shares and large-scale property developments that might otherwise be out of your reach
- they help ensure diversification across a range of asset classes.
To measure the performance of a managed fund, you measure the return. The return is the amount you have made from having your money invested in a fund. It includes both income paid and any growth on the assets.
What are unit prices?
When you invest in a managed fund, your money is pooled together with money from other investors. To keep track of what your share of the pool is worth, the fund divides the total value of assets in the pool into ‘units’ and quotes you a price for each unit. The fund keeps a record of the number of units you have bought. The price of units will change depending on market movements. Information on the unit price will to help you decide whether to sell your units or to buy more.
Direct shares
Historically, shares generate higher returns than all other asset classes. Over time, international shares have performed better than Australian shares, but Australian shares generally provide steadier income and may offer tax benefits.
Cash
Cash investments range from day-to-day bank accounts to short-term money market investments. Cash investments typically provide the lowest return over time and no scope for capital growth. However, they contribute to a well-balanced portfolio by helping to reduce your overall risk and generally they allow easy access to money. Cash is suited to investors with a short-time horizon.
Diversification
All investments contain elements of risk. These risk characteristics are not always the same for each investment – so what may affect the value of one investment may not affect another. By spreading your portfolio between a number of different investments, and diversifying your investments, you can decrease the effect of one investment on the performance of your overall portfolio.
Diversification ensures your investment dollar is spread across a range of investments in line with your investment objectives. Balancing your portfolio across a range of investments helps you to maximise your investment returns and minimise your exposure to risk. Managed funds are one of the easiest ways to diversify.
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