Speaking on the latest episode of the Nest Egg podcast, Quantum Financial principal Claire Mackay revealed her top investment tips.
1. Formulate your investment goals
The first thing investors have to understand is why they’re investing.
“Ask yourself, ‘What do I need to do, what are the steps I need to take to, what is it I want to achieve and how do I want to achieve it?’”, Ms Mackay said.
“I say to everyone, you earn the money, you work hard for the money, at least know what your money is doing. If you get to a point where you don’t feel confident, then seek advice.”
2. Know the strategy
No matter what you have invested in, it is essential you understand exactly why you’re holding what.
“One is, whatever the investment is, know what the strategy is for holding that investment, what is its purpose in the portfolio and the exit strategy,” Ms Mackay said.
Just as you need to ask yourself what your motivation for an investment is before you buy, so too should you know what you’re going to do with it when the time comes to sell.
“There are a lot of investments out there that are easy to get into, but how do you get out of them?” Ms Mackay said.
3. Don’t invest in what you don’t understand
While this may sound straightforward, it is a good rule of thumb to remain cautious of complex financial instruments.
“Prior to and throughout the GFC, we had a lot of structured finance, which is what I used to do before I joined the family business. I don’t touch them with a barge pole and I can actually understand them,” Ms Mackay said.
“If you don’t actually understand it, or your adviser can’t explain it to you in a way that you understand the investment, walk away.”
4. Do your own research
Staying informed and educated can not only improve your returns and reduce your risk, but also make investing more interesting.
“If you’re doing it on your own, there are so many websites available for investment information,” Ms Mackay said.
“I always send young people to their own superannuation fund [website] because there’s great information there.”
After checking where your money is already invested, you should look into where your money would be best used.
“The other website I always send people to is moneysmart.gov.au. That’s the government financial literacy website, which has got a wealth of information and calculators,” Ms Mackay said.
“Websites like Vanguard and iShares are big American companies that are not trying to sell you anything but are full of information.”
5. Understand the risk
There’s no reward without risk. While the former may be what is attractive, the latter is just as important.
“Well, there’s a lot of interesting and exotic investments out there. When clients come to me with those sort of ones, particularly in the start-up space as well, I say, ‘Look, it might be a winner, it might not’,” Ms Mackay said.
“How much are you prepared to put in? You should be prepared to lose all that money [because] it’s a punt.”
6. Consider ETFs
For investors who are looking for somewhere to put their hard-earned money, consider ETFs or exchange traded funds.
“We’re big fans of exchange trade and funds or following the index,” Ms Mackay said.
“You can go and buy the four banks and some other financials, and you’ve got the financial sector in Australia, which is a big part of our stock market.
“You could instead, go and buy a financials ETF. It’s a fund that’s listed on the Australian stock exchange, and it goes and buys all the financials for you. So instead of having shares on all of them individually, you just have one investment.”
An ETF can be a good option for those looking for a simple, straightforward, diversified and inexpensive investment.
“[Look at] who is the issuer of the exchange, trade and fund, and again we try to stick to the major players, because if you want to sell it there has to be a market for it, just like any other investment,” Ms Mackay said.
“By slicing and dicing different indexes, you can then look to have out-performance in certain ones at low cost core.”