Getting Started with Investing

Investing The Basics!
For those of us who intend to have something to retire on..

An investment utilises existing capital to grow your money, whether this is achieved through investing in financial vehicles that generate income, or alternatively create capital gains. Among the many investment classes on offer are cash, shares, trusts, bonds, managed funds, property, art or business opportunities for shrewd financial players such as venture capital. Planned diversification across a number of investment areas is a time-honoured route to long term wealth creation.

What Is The Purpose Of Investing?

Everyone has different financial goals, which again differ at various stages of life. A student leaving university will have very different ideas about handling their finances than parents raising three children on one salary with mortgage commitments.

One common purpose is having enough money saved for retirement years. With most of the world’s Western countries’ populations aging and birth rates steadily dropping, there is a shrinking workforce to contribute to retirement pension schemes. For the large numbers of baby boomers moving towards the latter part of their working lives, and living longer with lifestyle and healthcare improvements, investing individual savings is therefore a necessity in order to accumulate retirement funds.

To establish your own investment goals and strategies, take stock of factors including your current assets and debts, your earnings now and your income projected over future years. Factor in any funding sources you may have ahead, such as a family property, long service pay-out, or an inheritance (lucky you!).

Think about goals that are important, which might include going back to study, starting a business, or paying for a child’s post-university overseas trip. How much will they cost? What level of funds will you need set aside for your own retirement?

When deciding on an investment strategy, there are a number of factors to bear in mind, including what level of risk is comfortable to achieve desired returns, the time-frame available and how tax impacts on the selected investment classes. Look at whether you need to access funds in the interim, on your way to long term savings.

Investment Options

Educate yourself on the various investment classes and options that are available on the market. Remember that diversification is one of the fundamental rules for successful investing. By spreading, and therefore minimising risk, across various investment types that will individually perform with different degrees of success, the chances of good returns are maximised.

Managed funds provide small investors with the opportunity to combine their respective funds in a sizeable diversified portfolio. The fund is then managed on their behalf by a qualified fund manager or investment team. These funds can be structured to pay in as little as $100 monthly, after an initial $500 – 1,000 investment, providing access to sectors that were previously out of reach for smaller investors. The funds’ assets are split into units divided between its investors, with profits redistributed regularly to these investors, who can opt to accept the income or reinvest their earnings to build their investment growth. Managed funds primarily invest in the major asset classes of cash, local or international shares, property and bonds.

Shares, which are part-ownership of stockmarket-listed companies, are traded on the Stock Exchange, allowing investors to maximise their initial capital investment. Because of their potential for strong returns, shares are regarded as growth assets. Compared with other investment classes, shares traditionally perform better over the longer term and surpass inflation rates, offering investors the potential for higher profits, dividends declared from the company’s post-tax profits and tax benefits via imputation credits on those dividends.

Trusts pool investors’ funds to establish a sizeable fund investing in sectors that investors could usually not access individually. The trust is professionally managed by a fund manager who is responsible on its investors’ collective behalf for all investment decisions. In a trust, each person’s funds are calculated equally and referred to as units, with the unit price dependent on the performance and accordingly, the value of that particular trust’s investments. The unit price will fluctuate in response to market movements for these investments. There are a wide selection of unit trusts available to individual investors, some specific to one sector and others, sometimes called managed trusts, covering a mix of asset classes.

Venture capital is investment, through equity or sometimes debt arrangements, to fund primarily private companies requiring financial backing to grow. In return for their financial contribution, the investor receives a negotiated stake in the company and usually a seat on the company’s board. In addition to funds, investors also usually invest further by advising the company’s management and sharing their own skills and knowledge, while they share in its future revenues and growth. A venture capitalist is looking for a business that has a strategic fit with their investment criteria, is in its early development phases and has strong growth potential. A common objective is to see their investment yield a high capital gain on exiting.

Property is a common investment choice, with its established returns of income and capital gains. Investments in real estate can be a house or unit as a home, an investment property or holiday home, industrial properties, commercial offices and office buildings, or retail outlets and shopping centres. Investment can be direct, or via alternative methodologies including property trusts, property syndicates and direct shares in property companies listed on the stock exchange. Other types of real estate, such as residential and commercial rental property, have the potential for regular rental income and long-term capital gains.


Futures are a contract that specifies a future date of either delivery or receipt of a specified quantity of an underlying asset or product, at the price that was contractually agreed. Futures provide a hedge against unfavourable price fluctuations, protecting investors against such adverse shifts in share prices, or interest rates. There are international futures markets in financial instruments and in commodities including oil, wheat, soybeans, metals and pork bellies. Financial futures available to investors include futures in bank bills, Share Price Index (SPI) futures and government bond futures. As well as investors, futures markets attract speculators seeking out profits from price movements.


An option is an investment type that gives its holder the right to buy (a call’ option) or sell (a put’ option) a specific derivative security at an agreed price within a specified timeframe. The call option holder is looking for the stock price to rise, while the put option holder wants the price to fall, in both cases by a margin below the strike price’ which provides the profit that the investor is seeking when the option is exercised. Retail investors are able to buy and sell options on various financial and futures products. If the option is not exercised during the timeframe, the investment is lost.


Debt is the generic term for bonds, mortgages and other financial instruments that have been loaned and are structured for repayment. Known as fixed interest investments, these attract investors looking for an investment offering greater security than shares or property, while providing stronger returns over time than cash investments. Fixed income securities promise the investor with periodic income, with interest normally payable on a semi-annual basis.


High net-worth individuals and serious collectors also choose to accumulate wealth through planned acquisition of collectibles’ that can later be sold, often at a much higher value if their original investment was well-considered (or lucky). Some collectors invest or trade in fine art, contemporary art, antiques, vintage cars or jewellery.

Sources Of Investment Advice

Investment goals can be achieved without outside advice, but the majority of investors will seek advice from professionals, whether on an ongoing basis for their investing strategy, or on a one-off basis regarding a specific product or investment class.

Qualified financial planners help investors on an individual basis to work towards financial security and build wealth. There are many stages of life when people seek out the advice and support of a financial planner. These can include wanting to make astute financial decisions, identify financial products that address specific tax requirements; or leverage a major sum for healthy growth. Advice from financial planners can be sought just for their opinion on one particular investment product or asset class, or to handle a specific transaction. But as larger sums and goals are being considered, professional financial planning is usually a wise decision.

Accountants are similarly an excellent source of professional investment knowledge. Tax advice is primarily the focus for qualified accountants, as only a registered taxation agent can provide full tax advice. Chartered accountants are not legally permitted to provide advice on specific financial products on a fee basis, and their focus is not on wealth creation.

An experienced, well-regarded broker can provide in-depth and astute information on securities that will help build wealth and achieve either or both capital gains and / or income over the long term. There are many brokers that work with individual clients, providing their clients with regular advice, share tips, broking services and market education.

It is the individual investor’s ultimate responsibility to research and understand their investments. There is a wealth of information in the marketplace to help retail and small business investors, from the daily financial papers to Internet investment sites packed with information on financial matters, books, courses and advanced studies. Educating yourself on investing and financial markets will give you a good basis for planning out your long-term investment strategy.