I think most of us know that investing is important. I also think that most people under-estimate the importance of investing, and that investing has more to do with our lives than most people realise.
Investing could be seen in two ways:
1. Investing in your future to gain an advantage
2. Investing money to achieve capital growth or profit
I think both of these are very important, and what I do as a financial adviser ties in directly to both.
Investing in your future to gain an advantage could be buying a home so that you don’t need to pay rent in retirement. It also could be investing into education or training that will increase income. It might also be investing in solar panels to reduce electricity costs.
Investing money to achieve capital growth or profit is something that Australians are required to do via superannuation. Ideally the investments in your superannuation fund will go up in the time between now and your retirement, and this capital growth can help fund your retirement. The investments in your superannuation could be Australian or International shares, or could be more defensive investments like government or corporate bonds. You might even have some property trust investments.
Do you pay attention to how your super money is invested? It could be your biggest investment. I’m constantly surprised at how common it is for people to not really be aware of how their super is invested. If you had the same amount sitting in your bank account would you pay it much attention? I’d bet you would!
Something that you might have heard thrown around in the context of investing is ‘compounding’. This is where the income from an investment is added onto the investment, helping it to earn more income. The process then repeats. Over time, compounding can be very powerful and can really help to grow your wealth. The important thing about compounding? The longer the timeframe the more effective the compounding usually is – so don’t leave it too late to start!
Alison Kaigan – Your Canberra Financial Adviser