Investment basics - overview

Thinking about investing? This is a series on investment basics to help you make the best decisions for your circumstances. Investments may seem complex when you look at all the options out there, but we’ll go through some of principles to help you understand the implications of each. Every investment, excluding cryptocurrency, is made up of one or a mix of the four main asset classes. · Cash, this includes bank accounts and term deposits · Fixed interest, including government or corporate bonds · Property, or real estate, including residential and commercial properties, and · Shares, also known as stock or equities. You can own investments directly—like a term deposit or share portfolio—or indirectly—through a trust or superannuation fund. Each of the asset types has different characteristics, and each react in the market in different ways. It’s also important to say that each have an inherent risk of loss of capital. Investments are generally scaled on a range of risk, from very conservative to very aggressive. These aren’t universal titles, so they can be called different things. The mix of assets that make up an investment will determine where they sit on the “risk scale” Cash is the most conservative, then fixed interest, property and finally shares. The more your investment selection focuses on cash and fixed interest, the more conservative the investment mix. The more property and shares are in it, the more aggressive it will be. The scale is really a measure of an investment’s volatility. This is a financial term that just describes the movement in the price of an investment. As an example, interest rates don’t move very often or by very much, so they have low volatility. Share prices on the other hand move often, and they can move by quite a lot, so they have high volatility. Fixed interest and property are somewhere between the two. The trick with investing is understanding where you comfortably sit on that scale and then choosing a mix of assets to match your comfort factors. There is no wrong investment. [TEXT ON SCREEN: There is no wrong investment] Shares have their place, as does cash. Try to avoid having a mix of investments that don’t suit you and your needs. For example, a conservative investor with an aggressive investment mix, or an aggressive investor with a moderate investment mix. Check out my next video in this investment series, focussing on risk profiles.