Advice matters
Five ingredients to a sound investment plan

Thinking of taking your first foray into investing? Or maybe you’d like to make the most of your existing investment strategy?

Here are some helpful tips from our SHARE financial advisers. And of course, don’t forget we’re here to assist you in developing a robust and dependable solution, just for you.

Clear goals

Imagine going on a journey without knowing your destination. You wouldn’t know which direction to head in the first place. You may not choose a suitable vehicle to go there, or might run out of petrol before making it in any case.

Likewise investing, without a goal or purpose, is a bit like racing without a finish line. So, here’s one of the key components of a sound investment plan: clear individual goals.

Are you investing to save for retirement? Would you like to start a new business, or create wealth? Perhaps, you have other financial goals in mind – like buying a home or funding your wedding costs? Consider where you’d like to be in the short and the long run: this can help you determine how much money you’ll need to save to get there.

Your investment horizon

Once you’ve determined how much you need to save, the next key question is when you’ll need the money by. That is your investment horizon: the amount of time you’ll have to wait until you need to access your cash.

Generally speaking, financial goals can be broken down into three categories: short-term (one to five years), medium-term (five to 15 years), and long-term (over 15 years). Unless you’re nearing retirement, building a retirement nest egg is a typical example of a long-term objective.

So, why is your investment horizon so important? Investment markets are cyclical, meaning that they go up and down. But the longer your money stays invested, the greater the opportunity to recover from any dips. Plus, thanks to the power of compounding returns, saving early and often is likely to pay off exponentially down the line.  

On the other hand, with a shorter investment horizon, your investments may not have enough time to rebound from a significant downturn. So, a lower-risk strategy may be recommended.  

Keep in mind that these are just top-level considerations. Besides your goals and time horizon, knowing who you are as an investor is also key. Which leads us to the next component…

Your attitude to risk

Even for seasoned investors, investing is an emotional experience. After all, it’s your financial future we’re talking about.

As we said, markets – and hence the value of your investments – usually rise and fall over time. Your attitude to risk (or risk tolerance) is how much risk you feel comfortable taking in order to achieve your investment objectives. Together with your goals, investment horizon, and financial position, your attitude to risk forms your ‘risk profile’. And depending on your ‘risk profile’, some investment vehicles or funds may be more appropriate than others.

Also, as your life changes over time, so does your risk profile. That’s why it’s crucial to review it on a regular basis – to ensure that your investment strategy keeps up with you and your objectives.

Asset allocation and diversification

As we said, investing can be emotional, but it’s also critical to keep emotions at bay (as much as possible). By choosing investments based on your risk profile and keeping your gaze fixed on your goals, you may minimise impulse decisions that might put you off track.

With this in mind, asset allocation is a key component of your investment strategy. This refers to the proportion of shares, bonds, property, and cash in your investment portfolio. With asset allocation, the goal is to balance risks and returns based your goals, attitude to risk, and investment horizon.

Diversification is a different but related strategy. Building a well-diversified portfolio means mixing a variety of asset types and investment vehicles, in order to reduce your overall exposure to risk. Generally speaking, the more diversified your portfolio, the less volatile your returns and balance overall.

Expert advice

As you’ve seen, there’s a lot to unpack when it comes to making the most of your investment strategy.

At SHARE, we use our extensive knowledge and experience, combined with our research resources, to help you make well-informed decisions about your financial future. Quality financial advice can be one of the key components of a sound investment plan, providing you with a roadmap and ongoing guidance every step of the way.

Like to discuss your needs? Click here to learn more about how we can help, and find a SHARE adviser near you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.