Ways to invest your money to meet your financial goals

When it comes to investing, especially if you’re a newbie investor, there can be a lot to take in. From investing in stocks and exchange-traded funds (ETFs), to government bonds, fixed interest investments like term deposits, and even property, there are loads of different ways you can invest your money. So, where (and how) do you start investing?

We’ll start by going over two of the main investment styles, namely growth and defensive investing. Then we’ll have a look at why goals are important to your investing journey.

What types of investments are there?

There are four main asset classes, which come under the umbrellas of growth and defensive investments. Here’s a run-down of the difference: 

What are growth investments?

Growth investments typically carry a higher-risk than their defensive counterparts. However, with increased risk could come increased reward. That is to say, there’s the potential for a higher return on investment when you invest your money in growth-focused asset classes over the medium to long term. 

The higher risk vs. reward comes from the typical volatility of growth investment prices. The value of growth investments may fluctuate over time and have more susceptibility to economic and market changes than defensive investments. 

Some examples of growth investments include:

  • Shares (international and Australian)
  • Cryptocurrency (Bitcoin, Ethereum, Tether, etc.)
  • Property (investment properties where you are paid rent)
  • Infrastructure (bridges, roads, highways, etc.)
  • Private equity (investing in companies not publicly listed) 
  • Venture capital (e.g. investing directly in start-ups).

What are defensive investments?

Typically speaking, defensive investments are growth’s lower-risk cousin. Defensive investments aim to protect your initial capital and provide income (for example, interest earned on a high interest savings account). 

While you might not have as high returns as growth investments, this style of investing can be used to meet short term goals and diversify your investment portfolio. 

Some examples of defensive investments include:

  • Cash (high interest savings accounts)
  • Fixed interest investments (term deposits, government bonds, corporate bonds).

How to choose your investments

Before you go share trading or opening up a new savings account, it’s really important to do some research. You want to understand:

  • How the investment works
  • How the investment generates a return (e.g. capital gain or income)
  • How risky the investment is (growth vs. defensive)
  • If the investment charges you a fee for buying, holding, and selling the investment
  • How long you might need to invest in order to see a return 
  • If the investment will have an effect on your taxable income
  • If the investment will help to diversify your portfolio. 

There are also other factors to consider too, such as if you’ll pay a professional investment manager to assist you, or if you’ll head out on your own.

Do you need an investment manager?

From managed funds to financial advisors, there are plenty of people and organisations who can help you invest. But it’s also totally reasonable to want to take the DIY route, which has its own set of pros and cons. 

If you’re going to choose your investments by doing your own research, which is a common approach, know that you’ll be in control of your investment decisions and, as a consequence, liable for them. Your level of control could be a pro or a con, depending on how knowledgeable you are and how much research you’re willing to do. Also, you won’t have to pay a management fee, meaning upfront savings.

If you choose to enlist the help of an investment professional, such as an investment manager, financial advisor, or by investing through your superannuation, then there are a few other considerations to make.

Types of investments which may be managed on your behalf:

  • Managed fund
  • Managed accounts
  • Exchange-traded funds (ETFs)
  • Listed investment companies (LIC)
  • Superannuation

When investing through a managed fund, ETF, or LIC, your money is pooled with that of other investors. From there, a professional investment manager will make decisions regarding buying and selling assets (e.g. stocks) for you. Just note that an ETF is a passive investment and does not try to outperform the market. In the ETF scenario, the fund manager will track the value of an index or a specific commodity. There’s a lot to explore with ETFs and that is worth doing that before starting.

It takes a little bit of trust to let someone else play around with your hard earned cash, so do your research before choosing your investment manager, too. Check things like reviews as well as performance reports. But keep in mind, past performance is not indicative of future results. Always read the financial product’s PDS (product disclosure statement) too, so that you’re aware of the fees and T&Cs.

Whether you choose to invest in growth, defensive, or a mixture of the two will largely come down to what your financial goals are. Goals provide you with a time frame and an end date, as well as a benchmark with which to track your performance.

Define your investing goals

Different people will have different outcomes in mind for their investments. Maybe you want to save for a home deposit, a career break, enough money for regular holidays in your retirement, or perhaps you’re simply after a rainy-day fund. Whatever your goal is, it’s a good idea to define it. 

But let’s get into the details of why investing goals are important.

The importance of investment goals

Defining your goals early on will provide you with direction, motivation, accountability, and (hopefully) a sense of accomplishment.

  • Direction – financial goals give you a target to aim for. It becomes easier to make sacrifices and stick to a budget when you know what your end-goal is.
  • Motivation – financial goals motivate you because you know what the outcome could be if you remain disciplined with your investing.
  • Accountability – by holding yourself accountable, you are more likely to stick to your goals.
  • Accomplishment – reaching your financial goals will make you feel like you’ve really achieved something, which is great motivation to set new financial goals. Achieving goals also helps your mental health and wellbeing.

How to set investment goals

Setting goals for anything might seem like a herculean feat, but they say to work smarter, not harder. Setting up SMART goals – that’s Specific, Measureable, Achievable, Relevant, and Timely – can be a really useful format. 

Write your financial goals down with each of these sections in mind: 

  • Specific goals are those which are crystal clear to you. See if you can explain your goal in one or two sentences, like an elevator pitch. 
  • Measurable goals have an end point when you know you’ve achieved it. In most cases this will be a specific sum of money – $5,000 for instance.
  • Achievable goals are those for which you can actually take practical actions to reach your goal. It’s largely about being realistic. You reasonably can’t expect to turn $100 into $100,000 in 12 months – it’s just not achievable.
  • Relevant goals should be worthwhile, match your needs, and be within your power to action them.
  • Timely goals need to have an end-date and a timeframe for achieving them. A timeframe will provide you with checkpoints to track your progress. 

Here’s an example of a SMART goal: 

Lennie needs $5,000 for a holiday which is exactly one year from today. They must save $416.70 per month in order to reach this goal. They have worked out that their budget allows them to save enough every month in order to meet their goal in a year’s time. Smart. 

Once you have your SMART goals sorted, it’s a good idea to regularly review your goals – especially if they’re long-term goals where you’re more likely to get side-tracked or lose motivation. Plus, life happens. So, you may find yourself in a financial position where it’s necessary to rethink your actions or end-goal.

For more tips and guides, head over to Mozo’s investing hub.