There are a number of factors to consider when building your investment strategy. Here we take a look at the key fundamentals that set the foundation for a sound investment strategy that can deliver consistent outcomes over the long-term.
All investments provide a certain level of return and are subject to a certain level of risk. This means that as well as making money on your investments, there’s also the chance you could lose money or not make as much as you expected. All investments carry some risk – due to factors such as inflation, taxation, economic downturns or a drop in a particular market.
As a general rule, the larger the potential investment return, the higher the investment risk and the longer you need to remain invested to reduce that risk. The amount of risk involved with an investment can be managed by matching it appropriately with the length of time you have available to invest and your tolerance towards volatility or fluctuations in returns.
The main asset classes can be separated into two groups - defensive and growth investments. Cash and fixed interest are seen as defensive. Property and shares are usually classified as growth investments.
Most investments fit into one of four main categories or asset classes:
Cash includes money in bank accounts, as well as investments in bank bills and similar securities and some short term (up to 12 months) term deposits. Cash investments provide stable, lowrisk income in the form of regular interest payments.
Time horizon: short term