How investments work
Whether you’re an experienced investor or just starting to learn more about how investments work, here are some tips to help you make good investment decisions:
- Set your investment goals.
- Understand how risk and return work.
- Know the investment before you invest in it.
- Keep track of your investment.
These tips apply to your super, but you might find these tips helpful when making any decisions on any kind of investment.
Set your investment goals
You can’t control how your investments will perform but you can take control of your investments by creating a plan. Start by thinking about what you want to achieve with your investments and set a timeframe for each goal.
In terms of your retirement goals, think about whether you need to access your investments before you retire. If you do, then adding extra money to your super may not be your best option. If you don’t need to access your investments until you retire, you’ll find there are tax benefits of investing in super.
The MoneySmart website provides information to find out how to create a realistic plan that meets your needs.
Understand how risk and return work
Risk and return are closely related when it comes to investing. Generally speaking, the higher the potential return from an asset over time, the higher the potential risk.
To be a successful investor, you need to know the types of risks that can affect your investments.
You should also consider how much risk you’re comfortable with when you're shaping an investment plan.
Investing in a range of different assets is called diversification
You can manage risk by spreading your money between different asset classes such as Cash, Fixed Interest, Property and Shares.
Diversification makes you less exposed to a single economic event. For example, if one business or sector you've invested in fails or performs badly, this might not affect other investments - so you wouldn’t lose all of your money. For more information, see investment mix explained.
Know the investment before you invest
We’re here to help you learn as much as you can about your super and understand how your money is invested. You could start by looking at the investment plan options pages to understand what assets are included in your investment plan:
In general, it’s always worth reading the Product Information Booklet (PIB) or Product Disclosure Statement (PDS) for each investment product to make sure you understand the product's key features, fees, commissions, benefits and risks. Ask the product provider or a financial adviser if you have questions.
Keep track of your investment
Even with careful planning, economic conditions and company profits change from year to year, so it's important to keep track of your investments.
Market and economic conditions can change rapidly so it’s important to stay calm and be patient. Some investors try to time the market and fail. If your investment is for the longer term, it will always be subject to some short-term ups and downs.
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Thank you for printing this page. Remember to come back to gesb.wa.gov.au for the latest information as our content is updated regularly. This information is correct as at 18 January 2019.