It is never too late to start investing

Planning is the key to successful investing. Creating a plan will help you find investments that fit your time frame and risk tolerance.

Before you invest, review your financial situation. 

Write down what you owe (debts) and what you own (assets). Writing down what you own and what you owe will help you see what savings you can invest. It will also help you see how you can diversify. 

For your assets include your: 

• Superannuation 

• Home 

• Savings 

• Other investments 

Next, write down your income and expenses. A budget planner can help you track what money is coming in and going out. This will help you see how much you can regularly invest. 

Write down your financial goals. For each goal include how much you will need and how long you have to reach it.  

For example, taking a $10,000 holiday in one year, or reaching $500,000 in superannuation before you retire. 

Divide your goals into short term (0 to 2 years), medium term (3 to 5 years) and long term (5 years or more) goals. 

Setting and defining your financial goals will help you pick the right investment to reach each goal.

Investment risk is the likelihood that you will lose some or all the money you have invested. This can be due to investments falling in value or not performing well.  

All assets carry investment risks, and some are riskier than others.  

Risks that can affect the value of your investment include: 

• Interest rate risk: Interest rate changes reduce your returns or lose money. This is a key risk for fixed interest investments. 

• Market risk: An investment falls in value because of economic changes or other events that affect the entire market. 

• Sector risk: An investment falls in value because of events that affect a specific industry sector. 

• Currency risk: Currency movements impact investment and returns. This is a key risk for overseas investments, Australian companies with overseas operations and investments that have foreign currency in them. 

• Liquidity risk: You cannot sell your investment and get your money when you need to without impacting the price in the market. 

• Credit risk: A company or government you lend to will default on the debt and be unable to make the repayments. 

• Concentration risk: If your investments are not diversified, poor performance in one investment or asset class can significantly affect your portfolio. 

• Inflation risk: The value of your investments does not keep pace with inflation. 

• Timing risk: The timing of your investment decisions exposes you to lower returns or loss of capital. 

• Gearing risk: Using borrowed money to invest can magnify your losses. Your investments may fall in value, but you must pay the remaining loan balance and interest. 

The higher the expected return on an investment, the higher the risk. The lower the expected return, the lower the risk. Lower risk means the returns are more stable and there is a lower chance you could lose money. 

For example, a government bond is a low-risk investment. It pays interest, and the value of the investment does not change too much in the short term. Shares are a higher risk investment. The price of a share can move up and down a lot over a short amount of time. 

There are no shortcuts to investing success. The combination of high returns and low risk does not exist. 

Your risk tolerance depends on your ability to cope with falls in the value of your investment. Your age, capacity to recover from financial losses, financial goals and your health are some of the factors that may influence your risk tolerance.  

Ask yourself: How would I feel if I woke up tomorrow and found the value of my investments had dropped 20 per cent? 

If a 20 per cent drop would cause you to withdraw your money, high risk investments are not for you. 

It is important to understand your risk tolerance and find investments that are aligned to it. 

To find the right investments, you need to think about: 

• Return: What is the expected return on the investment? Does it come from income or capital growth? 

• Time: How long do you need to invest to get the expected return? 

• Risk: What types of risk does the investment involve? Are you comfortable taking on these risks? 

• Access to cash (liquidity): How long will it take to sell the investment and get your cash out? 

• Cost to buy and sell: How much will it cost to buy and sell the investment? 

• Tax: How much tax will you pay on earnings (income and capital gains) from the investment? 

Make sure the expected returns are realistic. If the returns look too good to be true, it could be an investment scam. 

The way you structure your portfolio will depend on your financial goals, investing time frame and risk tolerance. 

For short-term goals, lower-risk investment options are better. Consider investments like a savings account, term deposit or government bonds. These investments are lower risk as they are less likely to fall in value and you can access your money. 

For longer-term goals, investments with higher returns such as shares and property, can be better. These investments are a higher risk, but you are investing in the long term, so you can ride out any short-term falls in value. 

It is important to make sure you diversify your portfolio across different asset classes and within each asset class. This protects you against losing too much if the value of one investment falls. 

If you need help with investing, a financial adviser can help you work out your risk tolerance, set goals and choose the right investments.  

It is important to review your investments regularly to make sure they are performing as expected and check whether you are on track to reach your financial goals.  

Superannuation funds offer a range of investment options so you can choose how your money is invested. It is your responsibility to understand the types of investments your super is invested in and their risks. It is also important to consider if the investment types are suited to your needs, objectives and time frames. Super funds are responsible for managing the entire fund's investment portfolio.

If you have owned your home for more than 10 years and you sell it, you may be able to contribute up to $300,000 per person, or $600,000 per couple, from the sale to your super. 

You must be 60 or older and meet the eligibility requirements. See downsizing contributions into superannuation on the Australian Taxation Office (ATO) website. 

For further reading: Moneysmart 1 and Moneysmart 2