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estors16 Tips for Inve

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for Investors16 Tips f
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16 Tips for Investors
nkingBrightThin
estors16 Tips for Inve
htThinkingBrigh
for Investors16 Tips f
BrightThinking
16 Tips for Investors
nkingBrightThin
estors16 Tips for Inve
htThinkingBrigh
for Investors16 Tips f
BrightThinking
Someone’s sitting in the shade today because
someone planted a tree a long time ago.

~ Warren Buffett
Cont
Contents
1 ave one-tenth of everything
S
you earn, aside from super

2Regularity is the key

to good investing

3Insure, protect yourself

4Your super is your investment

for the future

5Long-term is long-term

6High reward investments

can be risky

7Never make an investment

based on tax alone

8Regularly check your

investments against your plan

9Buy low, sell high

tents
10
Starting early is key —
pass down good savings habits

11
Never invest in anything
you don’t understand

12
When taxi drivers are
tipping — it’s too late

13
Don’t put all your eggs
in one basket

14
Look forward not back

15
You don’t have to do it alone

16
Save your luxuries until last
 Never make
an investment
based on tax
Save
One-TENth
of everything
you
earn,
aside
from
super
In the George S Clason classic, the richest man in Babylon
said, that “gold cometh gladly and in increasing quantities
to any man who will put by not less than one-tenth of his
earnings to create an estate for his future and that of his
family”. In other words, putting away 10 per cent of your
current income (aside from that already put into
superannuation) will through the benefit of compound
interest, regular investment and good financial behaviour
of not spending more than you earn may result in a passive
income stream or ability to earn income while you sleep.

It’s important to allocate this money from your salary before

you see it — set up your pay to automatically deduct this
amount and put it in a separate investment account that you
do not touch for anything other than investment. Make sure
if you are keeping it in the bank you are earning a good
interest rate and that you are receiving (where applicable)
a bonus for not withdrawing.
Regularity
Never make
is the key to
an investing
investment
goodbased on tax

REGU
Timing the stock market is impossible. Even the most
experienced analysts have great difficulty determining
whether the market is at the very top or bottom of the
economic cycle. That’s why drip feeding money into the
market via an investment plan makes so much sense.

If you regularly invest a set amount of money —

regardless of what the market is doing — your investments
should grow, the price you pay for them will average out
over time and you will make the most of the natural cycle of
the stock market.

ULAR
Never make
an investment
based on tax

Protect
yourself
Many people forget that the most important asset they will
ever have is their ability to earn an income. Without an
income we cannot pay down debt, we cannot set up a
passive income stream, we cannot save for our retirement.
We cannot live!

Treat your ability to earn an income as reverently as all

your other valuable assets and protect it with insurance.
You naturally insure property, shares, artworks and the
like — don’t forget to insure yourself, just in case you can’t
work due to illness, accident or injury.
Never make
an investment
based on tax

Your
super
is your
investment
for the
future
Super is an investment. It’s typically the biggest
investment you will ever have, apart from your
home, so treat it as one. Pay attention to what your
super is invested in and how the investment is
performing in relation to other similar
superannuation products. Remember it is a long-
term investment, so don’t worry too much if the
value moves up and down with the markets. Do
worry if your superannuation fund manager is
consistently not performing as well as others.

Also, make sure that you are aware of the value of

your superannuation balance and regularly check
to see that it is on track to accumulate the money
you need for your retirement. Ask your financial
planner to help you with this. Also check how much
difference adding a little more each week to your
super account will enhance your retirement
balance. Your financial planner can also help you
with this.
 Never make
Long-term
an investment
isbased
long-term
on tax
Your money has to last you a very long time. Your
investment strategies need to reflect the length of time
your money will be invested. Long-term means long-
term — an investment in superannuation, for example,
typically lasts for up to 40 years in accumulation phase
and 20 years or more in retirement. Keep this in mind
when looking at long-term averages. Don’t sweat the
small stuff, make sure the long-term goals remain on
track and don’t panic about short-term movements.

Keeping your money in cash or cash products for the

long-term, even after retirement, is probably not the
best strategy because the value of your money will not
keep pace with inflation and your buying power will
therefore reduce. It is likely you will need to earn more
than the cash rate and so you might like to consider
investing in the share market which is, over time, a
higher returning asset class.
High
Neverreward
make
investments
an investment
can
based on be
tax
risky
As Erica Jong, author of Fear of Flying, once said:
“If you don’t risk anything, you risk even more” but
before taking any risks with your money, you need
to understand the very real relationship between
risk and reward. In a nutshell — the greater the
potential reward, the greater the risk.

Before investing in anything, make sure you

understand what the risks are and whether they are
risks worth taking. Is the potential for greater
reward worth the money you
are risking?

A general rule of thumb for assessing investment

risk is to compare promised returns to the return
on cash. If you could get five percent by leaving
your money in the bank, do the potential rewards
from other asset classes compensate you for the
risk you take when you withdraw your money from
the bank and put it in the alternative asset?

According to the Australian Securities and

Investment Commission (ASIC) the best scam buster
is the well-informed consumer. Many people lose
money each year on scam investments — don’t be
one of them.
Never make
an investment
based on tax
alone
When investing your money, you should be looking at
the capacity of the investment to pay returns and/or to
produce capital growth. If there is a tax benefit on top
— that’s great. However, the tax benefit should never be
the primary reason for the investment. In fact, any
investment which is heavily promoted as ‘tax effective’
should always ring alarm bells.
Regularly
check your
Never make
investments…
an investment
based on tax

against
your plan

Che
Once you have an investment plan, your financial
planner will more than likely have allocated your money
into various asset classes — a percentage will, for
example, be invested in cash, another percentage in
shares, another in property assets, etc. But changes in
the value of the assets within each class can mean you
have a greater percentage invested in one asset class
than you originally intended and less in another.

So it is important to check with your financial planner,

at least annually, to ensure that your investment is
still in line with your original asset allocation. The
investment can be rebalanced by your financial planner
by taking some of your earnings from profitable asset
classes and reinvesting in others.

eck
 sell high

Buy low
The rule of thumb for all investments is to buy low and
sell high. This is often easier said than done! Especially
if everyone else is buying — or conversely, if everyone
else is selling.

But if everyone else is buying, then it’s likely to be at the

top of the market (when prices are most expensive) and you
will be paying too much for the investment. If everyone else
is selling, then it’s likely to be at the bottom of the market
(when prices are cheap) and if you sell, you’re not going to
get what your investment is really worth.

You don’t want to pay more for an investment than what it

is worth and likewise you don’t want to sell one of your
investments too cheaply. So to be successfull at investing,
you’re going to have to learn to go against the herd. It’s
going to take a clear head and a lot of willpower but the
more you understand about the investments you are making
the easier it will be to hold your nerve and know the real
value of assets as distinct from the noise in the marketplace.
Starting
early
is key –
pass
down
good
savings
habits
The best advice investment
advice you could give anyone
is to start early. Make your
money start working for you
as soon as possible. It has
been shown that investing
early can mean that even if
you stop contributing money
to your investment after just
a few years you can still enjoy
a balance higher than if you
saved more each year for a
longer time later in life. This
is due to the effect of
compound interest and time.

And be a role model for your

children. The earlier they
learn the benefits of a good
savings plan, the better their
financial future is likely to be.
 Never make
an investment
Never
based on tax
invest
in anything you
DOn’t
under
 If someone tries to sell something to you and you
don’t understand it then you won’t know whether
it is a good investment or not. You won’t know
whether it is doing what it should, or when it
might be going wrong.

As an investor, you might not know which

companies to invest in and how they are likely to
perform — professionals can do this for you —

t
but you should know why you are choosing to
place your money in a particular type of

rs
investment and what the manager is expecting
to do with your money. If this can’t be explained

t
simply in terms that you can explain to your
friends or family then you probably shouldn’t

A
be putting your money into it.

N
d
 Never make
an investment
When taxi on tax
based
drivers
are tipping,
it Is
too
late
Any investment tips that are broadcast in newspapers,
blogs, chat rooms or taxis are not good tips. Think about it:
if everyone already knows about them then the potential
upside to the investment is already reflected in the price.
It might actually be a time to sell the investment, not buy.

You make money from an investment when you see potential

in it that other people don’t. For example, this investment is
cheaper than competitors for no particular reason, or this
product is going to take off, or this is an industry which is
going to increase in value because of new regulations.

This is the kind of analysis professionals like fund managers

do on a daily basis. They look at companies to see if they
think there is more value in them than the market currently
does. They interview company CEOs, CFOs, industry heads
and the like and find things out about companies they
invest in before the general market.

If you are listening to the noise around investments when

everyone is talking about them, it’s too late: the potential
has already been discovered and will already be reflected in
the price.
 Never make
an investment
DOn’t
based on tax
put all
your eggs
in one
basket
This is an oldie but a goodie — spread your investments
around. Why? Because if one investment goes bad it
won’t hurt so much. Too many people have all their
money invested in too few assets which means that
when something goes wrong, they suffer big losses.
If you have a well-diversified portfolio, made up of
different types of assets, then chances are that while
one might not be doing so well, others will be.

Good financial planners can help you build a

diversified investment portfolio which will spread
your investments and your investment risk.

Another great reason to diversify your portfolio is to

improve your access to funds in an emergency.
If you need money urgently, you can sell the
investments in your portfolio which make the most
financial sense at the time, rather than having to sell
the lot — potentially, depending on where things are in
the economic cycle, at a loss.
 Never make
an investment
based on tax
Look
forward
NOt
Back
Past performance is no guarantee of future
performance. This is the written disclaimer that
accompanies almost all financial planning
products. Keep this in mind when investing.

While past performance is indicative of relative

strengths of particular asset classes and good
managers and the performance of fund managers
when repeatedly outperforming others in their
class is indicative of good management, it’s not an
iron-clad guarantee and is not even always a
reliable indicator.

This is because markets change and investments

are cyclical in their relative strengths and the
investment styles which may have achieved best
results last year may not be those which achieve
the best results this year. In fact, they may be
amongst the worst. Yet another great reason to
diversify your investments.
 Never make
an investment
based on tax
You DOn’t
have to
do it
alone

HE
 When it comes to growing wealth,
don’t feel that you have to do it
alone and figure it all out by
yourself. There are many
investment professionals who can
help you maximise your wealth and
make the most of your lifestyle.

A financial planner can help you

prioritise what you think is most
important in life and how best to
achieve as many goals as you can
in an acceptable timeframe. A
financial plan will free you from
worry that you won’t have enough
for the future or that you can’t

ELP
keep on track with your objectives.

Fund managers, brokers,

accountants and property
managers can also be great
resources. Don’t be afraid to enlist
their help — as much or as little
as you want.
 Never make
an investment
based on tax
Save your
luxuries
until
last
Rich man poor man author Robert
Kiyosaki says it is important to
live like the rich to become rich.
Rich people buy luxuries last; the
poor and middle class often buy
luxuries such as big houses,
diamonds, furs, jewellery or boats
because they want to look rich.
They look rich but they get deeper
in debt on credit. The real rich
build their assets first and use the
income they generate from these
assets to buy luxuries.
Thoughts
Things you should know: This information has been prepared without taking
account of your objectives, financial situation or needs. Because of this you
should, before acting on this information, consider its appropriateness, having
regard to your objectives, financial situation and needs.
 nkingBrightThin
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