B & L Financial Services - Investment

Do you find money slips easily through your fingers leaving you with very little at the end of the day? Would you like your hard-earned money to work harder for you?B & L Financial Services

The biggest fallacy about investing is that it’s only for the rich. This is far from true – you don’t have to be wealthy to be an investor. In fact, investing is an effective way to create wealth. Put simply, investing involves putting your savings to work, helping you achieve your financial goals sooner. Wisely selected investments can increase your wealth, provide you with an income, or both.

You’ve worked hard for your money; by investing it you can make it work for you. A professional financial planner can work with you to help you achieve your financial goals – whatever your goals may be.

Which Investment is Best for You?

There’s no single answer to this question – it all depends upon your individual needs and circumstances.

Whilst there is a broad range of investments available, (within the scope of products/platforms that our planners can recommend) selecting the best option can be difficult.

Your choice of investments should be consistent with:

  • your short, medium and long term goals;
  • your current financial position; and
  • the level of investment risk you’re prepared to accept.

You’ll also need to consider:

  • security – how secure will your money be?;
  • liquidity – how readily accessible will your money be?;
  • estimated returns – what results can you expect?;
  • resistance to inflation – will your investment grow at a faster rate than inflation?;
  • impact of tax – what percentage will the “taxman” get?;
  • social security implications – how will it affect your eligibility?; and
  • investment horizon – for how many years are you planning to invest?

B & L Financial ServicesYour choice of investments should be guided by a strategic financial plan, not by instinct or rumours of “an outstanding investment opportunity”.

Investing without a strategy has been likened to building a house without an architect’s plans. At best, the end result will be unsatisfactory; at worst it will be worthless.

That’s why it’s imperative to seek professional advice. A financial planner can help you design an investment portfolio (a collection of investments) to suit your needs.

What Investments are Available

Most investments can be categorised into either lower risk defensive assets (eg. cash and fixed interest), or higher risk growth assets (eg. property and shares).

As a rule, the higher the investment risk, the higher the potential return. Consequently, over time, returns from growth assets generally exceed returns from defensive assets. However, it must always be remembered that the higher the return, the greater the risk or volatility and the potential for loss.

Understanding the pros and cons of all the available investment types – and what’s right for you – can be a difficult task. A professional financial planner can help you select the right investments to suit your individual needs.

Below is a brief explanation of the main investment sectors (otherwise known as asset classes).

Defensive assets

Defensive Assets – Cash

Cash (eg. bank accounts and bank bills) are generally only considered appropriate as primary investments if your time frame is short (up to three years), or to accommodate the need for ease of access.

If you’re looking at investing for three years or more, growth assets may be a far better investment choice.

Defensive Assets – Fixed Interest

Many investors believe the fixed interest sector consists solely of investing in bank term deposits. A bank term deposit is where funds are “locked in” for a fixed period and earn a set return. However, fixed interest investments actually come in many forms including:

  • treasury notes
    a short term debt instruments issued by the government;
  • debentures
    interest bearing securities commonly issued by finance companies; and
  • fixed interest trusts
    a unit trust that invests in a range of fixed interest securities. For example, mortgage trusts and bonds (government, semi government and corporate).

Fixed Interest

Many investors believe the fixed interest sector consists solely of investing in bank term deposits. A bank term deposit is where funds are “locked in” for a fixed period and earn a set return. However, fixed interest investments actually come in many forms including:

  • treasury notes
    a short term debt instruments issued by the government;
  • debentures
    interest bearing securities commonly issued by finance companies; and
  • fixed interest trusts
    a unit trust that invests in a range of fixed interest securities. For example, mortgage trusts and bonds (government, semi government and corporate).

Growth Assets

Growth Assets – Property

People’s largest investment and asset is usually their own home. However, investing in property isn’t confined to owning your home or even a rental property. The property sector comprises the following classes:

  • industrial;
  • commercial;
  • residential;
  • retail;
  • rural; and
  • tourism.

You can either purchase property directly, or you can invest in a property trust. Investing in a property trust generally gives you access to a range of property classes (as listed above) including – from large shopping centres to residential flats.

Property is generally viewed as a secure long-term investment, often providing better long-term returns than cash and fixed interest.

Growth Assets – Shares

Put simply, purchasing shares gives you part ownership in a company and the right to receive a portion of the profits (commonly referred to as dividends).

Changes in share prices reflect the market value of the company. Fluctuations in the market value of shares will be reflected in the underlying value of your original investment.

Income is paid to you in the form of dividends, representing your share of the company’s profits.

An added bonus is that dividends can provide you with substantial tax benefits, because they are usually franked – either fully or partially. This means the company has already paid tax on this money – usually to the corporate tax rate of 36 per cent. In some cases, it may be even higher.

The share market is characterised by volatility, with the value of share prices often fluctuating on a daily basis. However, over time, the impact of the daily movements diminishes. In fact, over the past twenty years, shares have consistently outperformed other investment sectors.

The share market can be a high-risk prospect if you speculate. Speculators “gamble” by attempting to profit from short-term fluctuations in share prices. The risk is substantial because it’s extremely difficult to predict the market’s movements over the short term.

Shares can, however, be relatively low risk if you take a longer-term view and invest in well-researched companies that are fundamentally sound.

If you are not comfortable entering in to the share market directly, but want to invest in this asset class, a managed investment (where your funds are pooled with those with other investors and invested by specialists) may be a good investment option for you.

If you would like further information on Investment please contact our office.