Ask An Adviser - What Is The Safest Investment Option For New Investors? (2)

Top answer provided by:

David Walter

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Hi Belle,

Firstly, congratulations on taking the first step towards your own financial independence!

The simple answer to your question: ‘What is the safest, low-risk option that is not super’ for investing is to use a bank account or high interest savings account.  These accounts do not have any fluctuation in capital value and are covered by a Government guarantee up to a maximum of $250,000. They are as safe as you can get and the trade-off for that capital protection is lower returns and no potential for capital growth (or loss).

The more complex answer involves you answering some more questions including:

What are your investment goals?

Are you saving for a car, home deposit, holiday or to create wealth?

What is your investment timeframe?

Are you investing for less than 1 year, 3 years, 5 years or more than 10 years

How comfortable are you with any short-term fluctuation in your investment value?

Is any fall unacceptable? Do you feel comfortable with a fall of 10%? 15%? 20%?

If you aim to achieve your investment goals in under three years, the safer and lower risk option mentioned above could be best for your needs.

A 5 year or longer timeframe would allow you to have some exposure to growth assets (within your comfort zone) to boost returns with the short-term risk dissipated by the longer time frame. There are a number of different investment vehicles and approaches to achieve your goals for this timeframe – they are a discussion for another day.

If your timeframe is 10 years or longer, you can then choose an investment vehicle that is going to work best for your future needs as well as providing you with the amount of investment risk with which you are comfortable.

For example, you could invest into an Investment Bond. These types of investments have many advantages including:

1. Income generated does not need to be declared on your personal income tax return
2. No additional income or capital gains tax to pay on withdrawal of funds after 10 years (assuming you meet the ‘no more than 125% of the previous year’s contribution’ rule)
3. Access to a broad range of asset classes and fund managers

Overarching all of these options are the three important criteria of investing to meet your goals:

1. Be disciplined and maintain a regular savings plan
2. Keep your eye on the prize and don’t sweat short term fluctuations
3. Don’t panic and redeem the investment early, fulfil the original timeframe

Belle, I hope this has provided you with some food for thought.

Before investing, seek the advice of a qualified financial planner who you can trust and who is interested in assisting you to achieve your goals and objectives. Investing is one piece of a larger financial picture that needs discussion to ensure that whatever investment decisions you make, they are not going to be placed in jeopardy if other parts of your financial needs have not been addressed.

All the best with forging your path to financial freedom.

Cheers,

David

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Article by:

David Walter

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