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Money Pillar #4 - Invest

investmoney learnaboutmoney moneypillars May 26, 2022

Hopefully you’re starting to see how the 5 Money Pillars build on one another.  It’s a bit like laying the foundations for a house (knowledge and understanding), which you then get to build on – both the essentials (toilet, bathroom, kitchen, bedrooms) and the discretionary things (fixtures and fittings).  

Once your house is built you can really start to embellish – maybe invest in some landscaping and perhaps even put a pool in (as that will increase the value of your property).  By the time all that is done you can give back, perhaps by putting a bird bath in, or planting some native trees that bees love.

OK, enough with the analogy.  You get my point though – going back to basics means that once you have progressed you rarely need to go back.  We are all human though, and some knowledge may need to be re-learned throughout life.

When it comes to investing, there is SO much information out there, and it often becomes confusing and complicated.  There are so many different sub-classes of assets, but essentially, there are four different types of assets that you can invest in, and these are classed as either Defensive or Growth:

•    Cash (Defensive)
•    Fixed Interest – term deposits, government bonds, corporate bonds (Defensive)
•    Shares – domestic and international (Growth)
•    Property – residential, commercial, retail, hotels and industrial (Growth).

Defensive investments are called that because they focus on generating regular income, rather than growing in capital value over time.

Growth investments aim to increase capital value over time, as well as potentially returning an income (i.e. through dividends or rent).  Because their prices can rise higher than Defensive assets, they are considered growth investments.  However, just as they can rise higher, they can also sink lower.

There is also investing in items such as gold, silver and collectibles (like jewellery and art).  

I’m often asked about cryptocurrency, and while many treat it as an investment. I see it more as gambling, or at best speculation.  That is my personal opinion, and as I know my risk profile, crypto is not going to form part of my investment portfolio.

If you have an investment portfolio you’re likely to have heard of the term “Asset Allocation”.  This means that your portfolio will be a mix of the above asset types, and the percentage of each type will indicate whether you’re a conservative, moderate or aggressive investor.  

Investing is something everyone should at least do something with.  Just Earning, Spending and Saving will not get you to financial independence.

Hiring a good financial planner, who also has investing expertise is something I highly recommend.  That said, being informed yourself is also extremely valuable.  This is your money, and understanding where it’s being invested and what the actual risks are is important.  Age, risk profile, and financial desires plays a huge role in where, when and how much you invest.

Figure out which asset type you’re most comfortable with and start there.  As your experience and confidence builds, try another asset class and incrementally increase your investment portfolio from there.  It becomes exciting and addictive once you start, so become informed and seize the day!