What type of investor am I?
Before you invest, you need to understand more about what sort of investor you are. We all want our returns to be as high as possible, but do you enjoy taking risks or will you lose sleep over a market downturn? And how long do you have until retirement?
What is my attitude towards risk?
Risk describes the possibility of negative returns or earning less than expected. It's very important to understand how you feel about risk.
Ask yourself these questions:
If you had some money to invest and:
- A trusted friend gives you a hot share tip and says you have to invest by the end of the day.Would you invest first and ask questions later? Would you let it go and not worry about it? Would you try and find out more information and wait before you invest?
- The local share market has fallen dramatically due to concerns about international markets. Do you sell your shares and move them into fixed interest investments? Do you leave your shares as they are and start looking at property? Or would you buy more shares? Do you like to follow your investments regularly? Do you like to watch them grow or do you prefer to take a set and forget approach to investing? Or do you like to watch them because you like to make changes and chase the best returns?
How long do you intend to invest before needing it?' Is it at least three years, up to seven years or longer?
What sort of investor are you?
Conservative investor: You have a short-term goal, such as retirement. You like to take the slow and steady path to growth, enjoy watching your investments - as long as they keep increasing - and will let short-term opportunities pass. You prefer defensive assets like fixed interest investments than growth assets like shares.
Balanced investor: You have a medium to long-term view of investing. You prefer to take the set and forget approach to investing, like to research before jumping in and like investing in a mix of shares and property with some fixed interest investments.
Aggressive investor: You see a share market fall as an opportunity, like to follow the markets closely, jump onto opportunities and hot tips, and love the thrill of a good return. You have plenty of time, so slow-growing fixed interest investments may not be suited to you.
Are your goals and investor profile compatible?
For example, you may have a short-term goal to double your money so you can pay for a holiday, but you're a conservative investor. Doubling your money in a short time may mean investing in a high-risk asset and running the risk of losing what you've saved. This means your goal is not compatible with your risk profile and you might consider saving this money instead.
There are no right or wrong answers here. You need to be comfortable with your investment strategy and ensure it matches with your goals and risk profile.