Making sound investment decisions

Monday, 7 June 2010

The collapse of a number of New Zealand finance companies generated a great amount of nervesness. A large number of mum and dad investers put their money with one or more of these companies that went out of business over the past 24 months.

In what could be a good example of ‘what not to do’ when making investment decisions for those hard earned savings, take a look at the hare and the tortoise story. It draws on the analogy of important strategic choices when planning to achieve a successful result. Here is how the story goes……

Once upon a time a tortoise and a hare had an argument about who is faster. They decided to settle the argument with a race. They agreed on a route and started off the race. The hare shot ahead and ran briskly for some time. Then, seeing that he was far ahead of the tortoise, he thought he’d sit under a tree for some time and relax before continuing the race.

He sat under the tree and soon fell asleep. The tortoise, plodding on, overtook him and soon finished the race, emerging as the undisputed champ. The hare woke up and realised that he’d lost the race. (source: www.wikipedia.org)

The moral of the story is of course ‘slow and steady wins the race’, which means research your investment options. Allocate time to work carefully through the decision making process before committing. Decide on the level of risk you are most comfortable with, and always seek independent advice. Below are some key tips to assist you with investment planning decisions, and gain further knowledge of how the financial investment markets perform.

1. Design an investment plan.

Researching an investment portfolio will result in you increasing your knowledge at the same time as identifying your preferred level of risk;

2. Select safe companies to invest with.

There is plenty of publicly available information you can obtain, such as annual reports, company announcements, prospectuses, investment statements and websites;

3. Diversification

In other words don’t put all your eggs in one basket – look at all four asset classes: cash, fixed interest, property and shares, then create your own portfolio, once again based on your own level of comfort with risk;

4. Monitor risk

Risk will always be an integral part ofany investment you make. The key to successful investing is awareness, and how to achieve a balance between risk and return;

5. Seek independent financial advice.

Obtain good sound and trusted feedback from a professional adviser who shares your values and goals;

6. Remember investing takes time,

So it is time spent in the market, not the timing of the market.


Here are some helpful websites to assist you with your research:

www.looklearninvest.org.nz
www.sorted.org.nz
www.scamwatch.co.nz
www.interest.co.nz
www.sharechat.co.nz
www.nzier.org.nz

You will now be in a good position to make well-informed and balanced decisions before investing your money.

This information is general in nature and should not be used as a substitute for financial advice. Always consult your financial adviser before making any financial decisions.