3 tips for investment portfolio success

A strong portfolio that delivers capital growth and high returns, all while minimising risk. Sounds good, doesn’t it? It’s the ultimate goal for any investor, but getting it right can be easier said than done.

It's important to know what you want to accomplish with your investments. Start by making sure your investment mix – whether it is shares, bonds or property – is aligned to your investment timeframe, your financial needs and your appetite for risk.

With that in mind, take advantage of these three investment tips to get you started on the path to wealth creation.

Know what you want to achieve


Know your goals

Be clear about your motivation for investing – in order to reach your goals, you need to choose the right type of investments and the right asset classes.

Perhaps you want to generate income for current expenses. Or maybe your goal is to grow the value of your investment to boost your retirement nest egg.

Your goals will ultimately influence your investment choices.

If you want short-term returns you may choose investments that provide income, like cash and fixed interest. On the other hand, if you're investing for the long haul, growth assets like shares and property may be more suitable for you.

Understand the different types of investment risk


Understand risk

All investments carry some form of risk – it may come in the form of market fluctuations, economic conditions or even political upheaval.

Your attitude to these risks will determine what type of investor you are and what type of assets you should invest in.

The challenge is not to eliminate risk – because that would also eliminate your returns – but to understand it and decide how much you will accept for a certain level of return.

Interest rate changes, currency movements and changes in the law can all affect how your investments perform. There are also other types of risk that can hurt your investments if not managed properly.

The value of your shares might fall because of volatile market conditions (market risk). Or if you own international investments, events in other countries can also affect how your investments perform (political risk and currency risk).

Be clear about your motivation for investing – in order to reach your goals, you need to choose the right type of investments and the right asset classes.

Inflation risk is another important consideration for all investors. If the after-tax return you get on your investment does not at least keep pace with inflation, then your money will effectively be losing value each year.

Generally speaking, the longer your investment timeframe, the more risk you are likely to be able to tolerate.

No matter what stage of life you are at and what your goals are, the most effective way to manage investment risk is diversification. Spread your money across different asset classes and industries and you’ll reduce your exposure to any one particular risk.

Choose assets that are right for you

Everybody's circumstances and financial goals are different, and will change over time. An investment strategy that suits one investor won't necessarily suit another.

When deciding which assets are best for you, it's important to consider your life stage, the amount of money you have to invest, how long you plan to stay invested and what your tolerance for risk is.

It is also essential that you know the characteristics of the assets you are investing in so that you can adjust your portfolio, and your expectations, along the way.

If you are approaching retirement, you may choose a higher weighting of defensive assets, like cash and fixed income, in order to preserve your savings while still having access to income.

But if you are just starting out on your wealth creation journey, you may be more comfortable taking on a higher amount of risk in order to potentially achieve stronger returns down the track. Growth assets like shares or property mixed with defensive assets like fixed income might help you achieve a better long-term result.

As you can see, achieving wealth doesn't just happen by accident. You need an understanding of risk and return, and a sound financial plan. And expert advice on asset management can strengthen your portfolio even further.

Important Information:

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