Investment Strategies For Australians: A Beginner's Guide

 

Being a successful investor means choosing investments that match your financial goals, how much risk you're comfortable with, and how long you plan to invest.

 

An investment strategy is like a plan. It decides where you should put your money and how to handle risks.

 

This blog gives you an overview of different investment strategies. It helps you pick the ones that fit your needs and can help you reach your financial goals.

 

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1. What Is An Investment Strategy?

 

An investment strategy is a set of principles that guides an investor's decisions based on age, financial and investment goals, future capital requirements, and risk tolerance.

 

Investment strategies range from low-risk conservative to aggressive, including growth and value investing. Traditional techniques aim to protect wealth, while aggressive strategies focus on capital appreciation and quick gains.

 

Formulating an investment strategy is a task that takes time to complete. You require reassessing your investment strategies following your circumstances.

 

 

2. How To Choose The Best Investment Strategy For You?

 

The right investment strategy depends on your current financial situation, attitude to investment risk, investment objectives, and investment preference (active investing or a passive approach).

 

Here are some basic principles you can follow to find the best investment strategy for you:

 

 

Step 1: Evaluate Your Financial Situation

 

Start by writing down your debts, income, expenses, and assets, such as:

 

• Super

• Savings

• Home

• Other investments

 

Doing this will give you an idea of how much savings you can invest, how much you can invest regularly, and how to diversify them.

 

 

 

Step 2: Define Your Financial Goals

 

Set and define your financial goals, including how much you will require and how long you need to reach them.

 

Classifying your financial goals for different investment time horizons will help you understand the suitable investment to attain each goal.

 

• Short term (0 to 2 years)

• Medium term (3 to 5 years)

• Long-term (5 years or more)

 

 

Step 3: Find The Right Investment

 

Assess different assessments on the following factors to pick the suitable investment.

 

• How the investment works. 

• How the investment yields a return and the kind of return expected as dividend income or capital gain.

• The risks related to the investment include Market risk, Sector risk, Interest rate risk, Liquidity risk, Credit risk, Concentration risk, Currency risk, Inflation risk, Timing risk, and Gearing risk.

• The fees and expenses involved in purchasing, holding, and selling the investment.

• How long must you stay invested to receive the desired return?

• Tax and legal consequences of the investment.

• How much will that investment form a part of your diversified portfolio?

• Expected Risk and Return on investment.

• Does the investment suit your risk tolerance, including age, financial goals, health, and ability to recover from financial loss?

 

 

Step 4: Decide How You Will Invest

 

• Going DIY mode to buy and sell investments,

• Use an investment manager (to invest in a managed fund, ETFs, a listed investment company, or managed accounts). You must open an online brokerage account to invest in shares and funds. Look at trading and maintenance fees to find the right deal for your plans.

• Seek the help of a financial adviser who can set your financial goals and help you find suitable investments based on your risk tolerance.

• Invest for retirement via your super.

 

If you don't have a share trading account yet, consider eToro, used by many investors in Australia and worldwide. You can create an eToro trading account HERE.

 

eToro AUS Capital Ltd ACN 612 791 803 AFSL 491139. OTC Derivatives are speculative and leveraged. Not suitable for all investors. Capital at risk. See PDS and TMD

 

eToro offers extensive trading features, social trading tools, and copy trading to imitate the trades of other famous traders. 

 

 

 

Step 5: Invest Regularly

 

Develop a routine of consistently setting money aside for investments. This establishes a momentum that has the potential to boost long-term returns significantly.

 

 

Step 6: Structure Your Portfolio

 

Build your portfolio based on investment goals, investing duration, and risk tolerance.

 

For short-term goals, opt for lower-risk investment options as they drop less in value and offer quick access to funds. Some possibilities include a savings account, government bonds, or term deposits.

 

Higher risk and higher returns investments like property and shares can be better for longer-term investors, as they can ride out any short-term price fluctuations in an asset.

 

Ensure you diversify your portfolio across varying asset classes and within each asset class. It safeguards you from losing a lot if the value of one investment falls.

 

 

Step 7: Monitor Your Investments

 

Review your investments regularly to ensure they perform as expected and are aligned to meet your financial goals.

 

 

 

3. What Are The Top 10 Investment Strategies For Australians?

 

Do you want to explore other investment options apart from super and property? Here are the best investment strategies for Australians to build an investment portfolio.

 

 

Cash investments

 

Cash investments are low-risk investments that include term deposits and savings accounts. They offer stable and lower returns, usually in regular interest payments. They are best suited for risk-averse or short-term investors.

 

 

Fixed Interest/ Income Investments

 

These are less-risky investments with a pre-defined period and provide predictable income as regular interest payments.

 

Private or government-issued bonds are an excellent example of fixed-income investments or bonds that can offer diversity and balance in an investment portfolio.

 

The investor gets regular interest payments during the term and the entire principal amount on maturity.

 

 

Australian or Global Equities/Shares

 

In this investment, you buy a portion of the company (in the form of shares) and become a part owner.

 

If the shares go up, your investment value increases and you may even receive some of the company's profits as dividends.

 

However, your investment will also decrease if the share price goes down. This makes investment strategies in the stock market high-risky and high-rewarding. They can be profitable if you invest in them for a long time.

 

 

 

Managed Funds

 

In this investment, your money gets pooled with other investors and invested and monitored by a fund manager. A managed fund can invest in one asset class or a mix of shares, cash, and property.

 

Pooling your money in a diversified managed fund reduces your risks and helps balance your investment portfolio. Any income you earn is taxed based on the investor's income tax rate.

 

As investment returns are linked to the investment market, it doesn't guarantee a positive return.

 

 

Exchange-Traded Funds (ETFs)

 

A type of managed fund, ETFs are passive investment options that you can buy and sell on an exchange. It tracks a specific asset or market index and usually doesn't try to outperform it.

 

 

Investment Bonds

 

Investment bonds are like managed funds where you put money into an investment/ growth bond and money from other investors. The investment manager supervises your funds and makes the daily basis investment decisions.

 

Investment bonds are 'tax-paid' investments and the earnings you gain from investment bonds are taxable. No tax is payable if you hold an investment bond for ten or more years.

 

Suppose you need more time to oversee your investments or want a knowledgeable manager to form investment decisions. In that case, it is a good option to consider.

 

 

Annuities

 

The guaranteed income feature of annuities makes it a popular option for retirement, irrespective of financial market conditions.

 

You can buy it through your ordinary savings or super. The returns you get are in the form of regular payments over a fixed term or for the rest of your life (lifetime annuity).

 

 

 

Listed Investment Companies

 

LICs are 'closed-ended' investments incorporated by companies listed on a stock exchange.

 

They are managed by an internal or external manager who chooses and oversees the pooled money to provide diversity to individual investors.

 

 

Real Estate Investment Trusts (REITs)

 

It is an ASX-listed property fund in which investors can buy units. In this investment option, your money is pooled and invested in various commercial, industrial, retail, or property assets. It is more affordable than purchasing a single property.

 

 

Gold

 

Investment in precious metals like gold can also be a good option for investors to hedge against inflation.

 

Investing in physical gold bars can be cumbersome, but more convenient alternatives exist to gain exposure to this sought-after commodity in the market. These options include gold derivatives, ETFs, mining stocks, and receipts.

 

 

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. The above are just some general options for educational purposes. All these options come with risk. This is not financial advice.

 

 

 

4. What Are The 4 Strategies For Investing?

 

Do you want to know what is the most successful investment strategy? We have listed popular and time-tested techniques below:

 

 

Dollar-Cost Averaging

 

In this strategy, you choose a group of investments and regularly invest the same amount, irrespective of price.

 

The main benefit of this strategy is that it can ride out the ups and downs of the stock market over a long period.

 

Consider dollar-cost averaging if you are a long-term investor and don't want to time the market to find the best price to enter the market.

 

 

Blue Chip Approach

 

This strategy involves investing a part of your investment portfolio in established public companies like blue chip companies. Most of the central banks on the ASX are blue-chip companies.

 

However, investing in 'blue chip' companies doesn't mean 'assured returns.' Make sure you thoroughly research blue chip companies before investing in them.

 

 

Fundamental Analysis

 

This strategy involves evaluating a company on variable factors to determine its intrinsic value. It includes:

 

• Income

• Revenue

• Cash flow

• Market capitalisation

 

Reading annual reports is a good resource for assessing the company's undervaluation or overvaluation.

 

 

Technical Analysis

 

Technical analysis involves trying to time the market by studying stock chart patterns and indicators like 'support, resistance,' relative strength index, etc.

 

Technical analysis signals an investment's strength or weakness. It uses past share movements to predict future trends and can yield solid returns.

 

 

 

5. What Are 7 Strategies You Can Use in Making A Wise investment?

 

 

Growth Investing

 

This active investment strategy focuses on assets with considerable growth prospects. It could be smaller or start-up firms experiencing rapid growth.

 

Finding growth stocks on ASX involves looking at growth investments' financials, industry standing, and growth prospects.

 

 

Value Investing

 

Value investing is another active investment strategy that requires analysing a company's financial prospects and standing and evaluating how it stacks up compared to the current share price.

 

Value investors seek shares of undervalued companies with the hope that the share price will increase and reach its intrinsic value sometime in the future.

 

The strategy takes time and patience to find value stocks and wait for them to realise their potential. However, the returns you get by holding a quality value stock can be profitable.

 

 

Dividend Investing

 

Dividend investing involves investing in dividend-paying companies.

 

Such companies are more established and mature with consistent income streams. The dividend that shareholders receive from a company serves as an additional income. You can reinvest your dividend to maximise investment income.

 

 

Fund Investing

 

Fund investing involves putting your money into funds that hold several ASX shares instead of investing in individual stocks.

 

Some examples of funds are ESG funds, banking share funds, resources funds, funds focused on sustainable energy, etc.

 

You will find most of the funds on the ASX. They are a quick way to diversify your portfolio and expose it to different investment themes.

 

 

 

Buy-And-Hold Investing

 

It is a passive investment strategy where investors buy a stock, hold it long-term, and ride out the market volatility.

 

With this strategy, you incur low investment fees, avoid active management expenses, and can defer taxes on capital gains on holding assets.

 

 

Fundamental vs. Technical Analysis

 

Investors can use technical and fundamental analysis to evaluate the stock price movements to determine its future direction.

 

Fundamental analysis involves assessing:

 

• Economic and financial factors impact a business's value

• A company's cash flow

• Financial statements

• The balance sheet and income of the company

• Assess the future cash flows a company will generate

 

Technical analysis uses indicators and chart patterns to determine a share's price movement to foresee its future performance.

 

 

Environmental, Social, and Corporate Governance Investing (ESG)

 

This strategy incorporates considerations about how businesses impact the ecology in their operations and how their services and products affect customers' lives.

 

ESG investors focus on investing in socially responsible and environment-friendly businesses. They consider investing ethically to create a positive influence through their investments that will also reap financial rewards.

 

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. The above are just some general options for educational purposes. All these options come with risk. This is not financial advice.

 

 

 

6. Frequently Asked Questions (FAQs)

 

 

What Are The Top Investment Options in Australia?

 

By strategically investing even a modest amount of spare cash, you have the potential to grow it into a substantial nest egg.

 

If you have extra money and are seeking ways to grow it, the ten investment options below are worth considering:

 

• Gold

• Cryptocurrency

• Managed/index funds

• ETFs

• Equities (shares/stocks)

• P2P lending

• Property

• Term deposits

• Savings accounts

• Superannuation

 

 

What Are The Five Investment Strategies?

 

There is no risk-free stock-picking strategy. Whichever strategy you select, ensure it fits your personality, availability, and risk tolerance.

 

Here are some of the best investment strategies worth considering:

 

 

1. Value Investing

 

Consider buying stocks that have a:

 

• Share price no over 2/3rd of intrinsic value

• PE ratios within the lowest ten per cent of the market

• PEG below one

• Stock price below or equal to tangible book value

• D/E ratio or Debt to Equity ratio below 1

• Existing asset ratio against existing liability greater than 2 to 1

• Dividend yield comparable to or above the market average

• Annual earnings growth at least 7% p.a. compounded over certain

 

 

2. Qualitative Measures

 

You can also use qualitative measures with other strategies to assess a particular company on the below factors:

 

• Company 

• Management

• Corporate Governance

• Industry and Competition

 

 

 

3. Growth Investing

 

A growth investing strategy focuses on the following factors to find potential growth stocks for investment:

 

• Robust past earnings growth

• Solid forward earnings growth

• Stable and relative costs when compared to revenues

• High or consistent return on investment

 

 

4. Growth at a Reasonable Price

 

This technique combines growth and value investing strategies to find companies that have:

 

• A share price is a little less than their intrinsic value

• Robust, sustainable growth potential that focuses on realistic growth rates between 10 to 20%

• Positive earnings for several years

• Optimistic earnings predictions for upcoming years

• High and rising return on equity

• A low price-to-book ratio or PE

 

 

5. Dollar-Cost Averaging

 

Dollar-cost averaging implies choosing a set of investments and investing the same amount regularly.

 

There are certain advantages of using this technique - It smoothens the ups and downs of the stock market. This approach is excellent if you have invested long-term and want to avoid time in the market to get a bargain.

 

 

What is The Number 1 Rule in Investing?

 

The number one rule in investing is - Don't lose money. First, be sure of what you are doing, and then go ahead and invest in appropriate assets.

 

 

 

What Are The Warren Buffett Investment Strategies?

 

Warren Buffett has maintained a consistent investment strategy for decades, delivering substantial returns.

 

His strategy revolves around value investing, which involves identifying undervalued companies with robust growth potential and staying invested in them for the long term.

 

Buffett prefers companies with a competitive advantage, such as a solid brand, a loyal and massive customer base, and high barriers to entry, and buys them at a price that offers a margin of safety.

 

 

What Investment Strategy Has The Highest Return?

 

You need to consider several factors to identify high-return investment opportunities in Australia that align with your goals and risk tolerance.

 

Growth-oriented investments like Australian stocks, international assets, and real estate typically offer higher returns than defensive investment options. From an income standpoint, commercial properties generally yield higher returns than residential properties.

 

However, a residential property in a high-value area could also deliver above-average returns over time (though there are no guarantees). Choosing a single investment that guarantees the highest returns can be challenging.

 

Nonetheless, achieving an annualized return of 7% to 8% through a diversified portfolio of both growth and income investments is a reasonable investment goal that doesn't expose you to excessive risk.

 

 

6. Conclusion

 

Getting started is the most essential part of your investment journey.

 

The sooner you begin, the more time you will have to build your wealth through compounded returns.

 

Having an investment strategy helps you reach your financial goals fast. Selecting an approach that fits your style and aligns with your objectives can guide your decision-making and make your investing process a breeze.

 

If you don't have a share trading account yet, consider eToro, used by many investors in Australia and worldwide. You can create an eToro trading account HERE.

 

eToro AUS Capital Ltd ACN 612 791 803 AFSL 491139. OTC Derivatives are speculative and leveraged. Not suitable for all investors. Capital at risk. See PDS and TMD

 

 

 

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