[VIDEO] Invest smarter: The golden rules of investing

MoneySmart
(ASIC)

Smart investors don’t rely on good luck; they plan, research and understand their investments and how these fit with their financial goals.

Work out your financial goals

If you’re planning to invest, being well prepared will improve your chances of success. Think about your investment goals and where you want to be in the future.

Ideally, you will have at least one financial goal in mind; however, smart investors think about short, medium and long-term goals. Allocate a timeframe to achieve each goal. To find out more, read our tips on financial goal setting.

Once you have set your goals you’ll need to develop an investment plan that meets your needs and is achievable.

Decide how much risk is best for you

Setting investment goals is important but you also need to consider your appetite for risk. A study by ASIC on financial behaviours found that 27% of people had heard of the risk/return trade-off but didn’t really understand it, and 39% hadn’t heard of the risk/return trade-off at all.

Investments that carry more risk are usually better suited to long-term investments because potentially higher returns come with greater short-term volatility. On the flip side, being too conservative with your investments may make it harder to reach your financial goals.

Aim to match investments to your goal timeframe, but make sure you are comfortable with the types of risks associated with each investment. Find out more about risk and return.

Judging expected returns

To help you work out whether the returns offered by the investment opportunity are reasonable, compare them to the expected returns of similar products. Be wary of returns that seem high compared to similar investments. Also be aware that some investments that offer relatively modest returns can also be high-risk.

Check your investment is licensed

It is important to only deal with people and businesses that are licensed so you’re better protected if things go wrong and can access free dispute resolution services.

Checking investment schemes

You can use ASIC’s Professional Registers to check whether a company or investment scheme is licensed by ASIC. ASIC lists allow you to check basic facts about companies and investment schemes, such as whether they hold an appropriate licence.

Be aware that a licence from ASIC does not mean that ASIC endorses the company or investment or that you can’t incur a loss from dealing with them. It means the business has met basic standards such as training, compliance, insurance and dispute resolution. Checking ASIC’s databases should be only one of the many checks you do before you invest.

Checking financial advisers

If you are planning to use a financial adviser you can check they are licensed on ASIC’s financial advisers register. The register will also tell you where an adviser has worked, their qualifications, training, memberships of professional bodies and what products they can advise on.

Get to know the investment

Before you jump into any investment, you’ll want to know:

  • How is my money being invested?
  • How well has the investment performed compared to similar investments over the last 5-10 years?
  • What are the fees (including up-front and ongoing fees, performance-based fees and exit fees)?
  • Is there is a ready market if I need to exit the investment?

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