In this week’s investment article I take a closer look at Shane Oliver’s nine keys to successful investing.
Whilst I’m sure many of you have read or heard of some of these gems before, I think this is a timely reminder in times when debt is increasing and the gap between those that have and those that don’t widens.
These principles of investment carry through to all generations and apply equally to young adults entering the workforce, young families paying off a mortgage or those in retirement.
In many years of experience as an adviser, I have witnessed many very successful investors who have amassed large amounts of savings simply by starting off with as little as $100pm in a savings plan and building from there.
As they say, the most important step is just getting started. Once a disciplined savings pattern is established then regardless of the amounts, the power of compounding interest kicks in and over time a small initial sum can grow to a large nest egg. Superannuation is a great example of this strategy that largely relies on a combination of compound interest, regular ongoing contributions and time to achieve a good end result.
Young people are often put off by superannuation due to the inflexible long term nature of this savings vehicle. However, the inflexibility is generally the thing that determines that they will have sufficient set aside for a comfortable retirement. The recent early access to superannuation, whilst necessary for some is bound to have a significant impact on final super balances. Superannuation is simply one form of savings vehicle and whilst very tax effective I think a potentially smarter strategy combines super with other investment options that may be more flexible and cater better in periods of uncertainty like those we are currently facing. Very few people can say that they have a job for life regardless of external factors and therefore good planning and a diversified investment approach can take some of the short term risk away by allowing access to funds in tough times. I don’t believe that there is any one investment strategy that can guarantee success, rather a combination of strategies that utilises one or more of the nine keys highlighted in this article are less likely to fail. Some investors will only invest in shares, others in property and others prefer to stick to cash. Regardless of the choice of investment vehicle the principles ultimately remain the same. Step 5 which talks about “turning down the noise” is possible one of the biggest traps that new investors make. In the graphic illustration showing share market performance over days, months, years and decades we can see the impact that time can have. Here the share market risk or volatility is significantly higher over shorter time frames and yet often people will make short term decisions to buy or sell volatile assets like shares based on a positive or negative press release.
Finally point 9 talks about seeking advice. Those of us with perhaps a few more years of experience under the belt will know that you can’t be an expert in everything. Many people go to a gym and engage the services of a personal trainer, not because they don’t know how to use the equipment but rather to keep them accountable, on track to achieve their goals and importantly to avoid mistakes which could end up causing an injury. These days there is no end to the amount of information that can be gleaned off the internet, but if I’m sick I want to see a doctor or if I have a tax query I want to talk to an accountant. In the same way a good adviser should be able to help you achieve your goals as you pass through the many stages of life and importantly also help you to avoid some of traps and pitfalls that many investors fall into.
This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to their objectives, financial situation and needs.