Start Your Investment Plan

Are you working through your 2022 personal financial plan? We set the challenge and asked you to make this year, the year you manage your financial wellbeing and start planning for the future. Your personal financial plan is a collection of plans to help you achieve your financial goals. Achieving your financial goals will allow you the freedom to make choice and live the lifestyle you prefer.

Over the year we will develop your personal financial plan with a guide on each of the areas in the pie chart, including the following:

• Start a Personal Budget

• Start an Expense Reduction Plan

• Start a Debt Reduction Plan

• Start a Savings Plan

In this issue we are looking at the Start Your Expense Reduction Plan. With the cost of living increasing and little increase in wages, now is the time to assess your expenses.

We have all seen the empty shelves and know the effect of the recent floods and the Ukraine war has on world food, fuel and energy shortages. Right now the demand is greater than supply for these commodities. This means we are seeing price increases and for some items the increases are enormous.

While it might be easy to decide you will buy the cheaper line items, this won’t be an option for all your purchasing decisions. Energy prices have increased and unless you already have solar there is no alternative. The prices in the energy market are fairly even across the board. Similarly for fuel. But rather than simply adjust the spending, you will first need to revisit and revise your budget. With an understanding of how much you need to live on each week, your expenses can be managed. So make this year your time to manage your financial wellbeing and make expense reduction a part of your 2022 personal financial plan.

1. Identify Your Goals

A good way to start is to identify you investment goals. Are you looking for a reliable passive income stream? Or are you looking for an investment that has long term capital growth potential. Do you prefer ethical investments? Or do you wish to invest in innovative companies? You goals might be:

• Receive regular fully franked dividends

• Invest in stable Australian public companies

• Be able to sell quickly if needed

• Have additional funds in retirement

• Build a portfolio of Australian listed shares

• Build a portfolio of Australian and overseas shares

• Build a portfolio of Australian property

• Build a diversified portfolio with a mix of cash, shares, and property

2. Assess Your Horizon

Your investment horizon will depend on your goals and life stage. Your investment horizon typically falls into short-term goals, medium term goals, and longer term goals. Generally, at any stage of your life you will have more than investment horizon at any one time in your life. However, one may have importance than another. A young professional woman, while saving for her retirement is less likely to rely upon her superannuation savings. As a pre-retiree your short-term and medium-term horizons may be equally important, as you pay off any outstanding debt yet still build that next egg to see you through retirement.

• Short term horizon (less than 5 years)

• Medium term horizon (between 5 and 10 years)

• Longer term horizon (more than 10 years)

3. Assess Your Risk Profile

Investing carries risk and some investments will be riskier than others. So how you invest and the type of investment that appeals to you will depend on your investment risk profile. Generally, the riskier an investment the higher the return or reward. And conversely, the lower the risk, the lower the reward. A term deposit has a very low risk, because you are almost certain that the money you place in a term deposit will be returned. Shares in the other hand have a higher risk. Risk profiles vary but are generally within the following categories: Consider these:

• Conservative (low risk)

• Moderately Conservative (modest risk)

• Moderate (balancing risk and rewards)

• Moderately aggressive (higher risk for potential higher reward)

• Aggressive (highest risk bearing profile)

4. Review Your Investment Options

There are many personal investment choices and options to consider when starting your investment plan. Not only will you consider the type of investment, but the timing of the investments, the expected returns, how long you will keep the investment, and the risk involved. You should also consider who will own the investments. Consider these:

• What return will I get from this investment?

• When do I want to purchase this investment?

• How long do I need this investment?

• Will I need to sell the investment quickly?

• Will I own the investment in my own name?

5. Decide on Your Investment Mix

Having a mix of investments in your portfolio helps to smooth the effect of fluctuation as the investment values and returns will most likely go up and down at different times. A diversified portfolio may mean that you own different types of investments, such as cash, property, and shares. Or diversification may mean you have brought assets in differing sectors such as owing shares in mining, banking, and retail By diversifying you have exposure to different kinds of investments and/or different sectors of the market. You might consider:

• Should I buy different classes of investments?

• Should I buy Overseas Investments?

• Should I buy in different market sectors? At the beginning of the year we set out how to prepare your budget. So, your first steps will be to review your budget, and see what adjustments can be made. Do you have disposal income available to put towards extra debt repayments? How much extra do you have? How often can you commit to that extra repayment? Is there a luxury item that you can do without, such as that third cup of coffee you purchased at your favourite bar during the day?

6. Review Your Investment Portfolio

You could take a set and forget approach to investing. However, like anything worth your time, so is reviewing your investment portfolio. How often you track your portfolio will depend on the investments and your investor profile. A high risk investment may need to be reviewed daily. You might like to know the value of your investments, on a monthly quarterly, or yearly basis. You should regularly track the value, the risks, and the rewards. Track your investment and look for any patterns

• Does the value fluctuate seasonally?

• When are the dividends paid?

• Is there news about your investments?

• Is there news of a collapse in company you have shares in?

• Are you enjoying a good return on the investment?

• Is the return on the investment lower than your expectations

7. Rebalance Your Investment Portfolio

Once you have reviewed your investments, you have the knowledge to make some decisions about your portfolio. You need to consider whether to maintain the portfolio as it is, sell some of the investments, or buy some new investments. You should consider does the investment still meet my needs, and my values. You need to consider what approach you are going to take if the return on the investment isn’t meeting your expectations. Track your investment and look for any patterns:

• Should I reinvest the dividends to buy more shares?

• Should I cancel the dividend reinvestment and take the cash?

• Should I buy diversify my portfolio more?

• Should I sell a particular investment?

Market Sectors

There are a range of market sectors into which you can invest. Some typical examples include:

• Banking

• Mining

• Retail

• Energy

• Health

• Communication

• Commercial Property

• Residential Property

Portfolio Investment Classes

There are many classes or types of investments to consider. Here are some examples:

• Cash

• Australian Listed shares

• Overseas shares

• Term Deposits

• Bonds

• Precious metals

• Exchange Trades Funds

• Real Property

Who Owns the Investments

There are many ways to hold your investments. You may choose to own the investment in your own name or you may choose a special investment structure such as a family trust, a company, or a self managed superannuation fund. You may decide to own the investments alone, or jointly with your partner, or through an investment club. Don’t forget your own superannuation fund as an investor. Most retail and industry funds allow you to access your account online and may even allow you to update the investment classes or your risk profile online.

Choosing Your Investment Advisers

Making wise investment decisions required an understanding of how to go about buying and selling and the exercising the right knowledge.

One way to go about this is to do the financial training and gain the specific investment knowledge yourself. This takes time. Another way is to find an investment adviser with the skills and knowledge in the assets in which you want to investment. You may find one adviser will be sufficient for your needs. However, you may find you need a specialist if you are investing in collectibles or precious metals. Speak with a few advisers until you find one you are feel confident with. Research them, and check their credentials with the issuer.

It takes effort to maintain your investment pattern but once established that pattern you will begin to watch the valuation go up and at times go down and develop a sense of relief and feeling of security in knowing that your plan is working, your goals are met, and you can expect a future passive income stream to supplement your income.

"Commit To Sticking To The Plan"