Insights
What is Investment Advice? - and Tips to Invest Safely
What Is Investment Advice? (And Some Tips on How to Invest Safely). Investing may be the key to creating wealth for your future. But before you get started, it’s important to know what good investment advice looks like.
What is investing?
The simple definition is that you put money into a financial instrument to generate income or capital growth. These instruments include properties, shares, and even currencies.
However, this simple description hides a world of complexity. Successful investing requires expertise that many people don’t have. That’s why many prospective investors seek advice from experts.
In this article, we’ll talk about what good investment advice looks like. We’ll also look at some considerations to keep in mind so you can invest safely.
What Is Investment Advice?
It’s simply any advice you receive from a qualified investment planner or adviser in relation to managing your portfolio. Many financial professionals offer investment advice, assuming they have the qualifications to do so. There are also professionals who only offer investment advice. Typically, they have personal experience as investors that they leverage for your benefit.
All these options can make seeking advice a difficult prospect for the new investor.
With so much investment advice available, it’s often difficult to figure out who to work with. It’s recommended that you check the credentials of any professional who claims to offer advice.
You should also remember that no adviser can provide perfect insight. Instead, what they provide is the strategy that will stand the test of time. The goal is to create something that withstands changes in the markets and doesn’t leave the investor open to making irrational decisions.
It’s the idea of keeping your head when all around you lose theirs. With good investment advice, you can capitalise on market changes.
Investing is inherently risky, so it’s always possible that you could lose money, even with good research and advice. However, the potential gains are what draws so many to investing. If you get it right, you can improve your financial standing and create a better future for yourself.
What’s the Difference Between Investing and Speculating?
On the surface, these two activities appear similar. Both involve spending money on a financial instrument with the aim of generating a return.
The difference lies in the goal.
Investing is about building long-term wealth growth in assets that also generate an income. On the other hand, speculation focuses on making a quick buck through buying and selling of assets. You could also argue that those who invest in assets that don’t generate an income, such as in gold and paintings, are speculating.
When you invest, you’re usually looking to minimise the risk as much as possible. There’s a delicate balancing act between risk and reward at play here. Your goal as an investor is to make a stable income from your assets over a long period.
Speculators take on much more risk as a result of the required short-term return. They’re looking for fast returns and they’re willing to try riskier tactics to get them. Many even compare speculating to gambling. However, speculators do conduct research to make, in their opinions, the best possible choices. They also accept that they’re taking huge risks because they want those massive short-term gains.
This leads us to a key question for you as an investor…
Should I Invest for Income or Capital Growth?
When you invest for income, you’re looking to generate a passive income over time. For example, somebody who invests in property may expect to make an income from rent.
Investing for capital growth means you’re looking into the future. You may not make any money from the investment as you hold it. However, you’re banking that the asset’s value will grow and you’ll make a profit when you sell.
Our investment philosophy is that investors should always aim to receive an income from their asset. However, the balance between this and investing for capital growth depends on what stage you’re at in life.
For example, a retiree will usually have more need for income than capital growth. As such, they may invest in assets that offer a sizeable income now, even if they have less chance of generating capital growth. However, somebody who’s still in the accumulation phase may want to take a more even-handed approach and focus on both income and capital growth.
What’s key here is that the balance of your portfolio will change over time. As your needs evolve, so too will the assets that you hold.
Is Investment Advice a One-Size-Fits-All Solution?
Absolutely not!
One of the most common misconceptions about investing is that you need to have wealth before you can invest. That’s not the case at all. Many who seek investment advice aim to build wealth through investing, rather than leveraging existing wealth.
This means that there are many investment strategies available.
An advisor who only offers one solution may not be steering you in the right direction. Good investment advice involves learning about the investor’s current situation. From there, the advisor can build a plan based on the current situation and what the investor wants to achieve.
What Should I Consider When I’m Looking to Invest?
There are things that you may need to think about before you start investing. These include the following:
- Your capacity for risk
- If you’re not comfortable taking on the risk of a specific investment, it may be best to seek other opportunities.
- Your budget
- The amount you’re able to spend will affect the types of assets available to you.
- Any taxes related to buying, holding, and selling the asset
- The amount of time needed for the investment to generate a suitable return
- Whether the projected returns seem realistic or not
- If the projections don’t sound right to you, it’s usually not a good idea to take the risk.
How Do I Select Investments?
Again, it all comes down to your current position and what you hope to achieve.
The first step is usually finding an advisor who understands your situation. Ideally, that advisor works with people who are in a similar position to you. This will give the advisor an understanding of your risk tolerance.
This advisor can then provide guidance on how to choose investments that suit your circumstances.
Get Good Advice Before Making Any Decisions
While the above gives you an idea of what to consider when you invest, please note that it is general information. It doesn’t take into account your specific circumstances.
It’s usually a good idea to speak to an investment advisor before making any decisions. They’ll provide insight into where you are right now – and how you can get to where you want to be.
Remember that you don’t need to be a wealthy person to invest. You can invest to build wealth. The key is having a suitable strategy for your position.
That’s where Modoras comes in.
Our team of financial advisors can help you create your investment strategy. To find out more, get in touch with us today.
Resources:
https://moneysmart.gov.au/how-to-invest/develop-an-investing-plan
https://www.canstar.com.au/investor-hub/return-on-investments/
https://www.investopedia.com/terms/i/investment-advice.asp
https://www.investopedia.com/ask/answers/09/difference-between-investing-speculating.asp
IMPORTANT INFORMATION: This blog has been prepared by Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licences (Number 233209). The information and opinions contained in this presentation is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. Any individual making any investment or borrowing decisions should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to borrow funds or purchase, sell or hold any particular investment. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of, credit contract entered into or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog may change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.
