Develop An Investing Plan

Six steps to get ready to invest

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

1. Review your finances

Before you invest, review your financial situation.

Write down what you owe (your debts) and what you own (your assets). For your assets include your:

super
home
savings
other investments

Our net worth calculator can help you record this. 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.

Then write down your income and expenses. Our budget planner can help you track what money is coming in and going out. This will help you see how much you can put toward investing regularly.

2. Set your financial goals

Write down your financial goals. For each goal include how much you'll 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.

Then divide your goals into:

short term (0 to 2 years)
medium term (3 to 5 years)
long term (5 years or more)

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


3. Understand investment risks

Investment risk is the likelihood that you'll lose some or all the money you've invested. This can be due to your investment falling in value or not performing how you expected. All assets carry investment risks — some are riskier than others. 

Risk and return

As a general rule, the higher the expected return on an investment, the higher the risk of the investment. 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 doesn't 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.


4. Research your investment options

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 frame — how long do you need to invest to get the expected return?

Risk — what types of risk does the investment involve? Are you comfortable to take 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?


5. Build your portfolio

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're 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 higher risk but you're investing long term, so you can ride out any short-term falls in value.

It's 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. See diversification for how this strategy can help you.


6. Monitor your investments

It's important to review your investments regularly to make sure they're performing as expected. And check whether you're on track to reach your financial goals. See keep track of your investments.