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Australians have just witnessed the third rate hike in as many months by the Reserve Bank of Australia. Petrol prices have increased again. the aftermath of the recent floods continue to plague the eastern seaboard, raising food prices even further. And a war in Ukraine, during winter, is exacerbating and stretching our energy resources.
The last two words people want to hear in times of financial pressure are ‘save’ and ‘invest’, yet that is the only way to withstand a financial or economic storm further down the line, so we should all be thinking about our short vs long-term investments.
Short-term investments are financial contributions made to a fund or portfolio that can provide access to the cash within a short period of time – usually up to five years. These types of investments generally yield lower rates of return but are described as ‘liquid’, which means they’re easily accessible by the investor.
Long-term investments are financial instruments that allow investors to grow their portfolios over a period of time. These investments typically comprise stocks, bonds, property and/or cash funds. Long-term investments come with the chance of potentially higher rewards but will require patience and the capital to set aside for a longer period of time.
There is no one size fits all approach when it comes to investing but at Step Up, we encourage our clients to diversify their investments to minimise risk. Investments go through ebbs and flows, which are dependent on a myriad of external economic, social, even global factors. These factors are out of your control and can positively or negatively impact your financial situation. Diversification mitigates risk by ensuring that when one of your investments may not be performing well, another will.
There are two types of short-term investment considerations: cash or fixed interest investments. Cash can be invested in attractive bank accounts or high interest savings accounts which means your money earns interest whilst doing very little. Another short-term investment option is a fixed interest investment, which offers a set rate of interest over a predetermined period with the principal capital amount repaid at the policy or fund’s maturity.
Long-term investments offer a wider range of options, which we recommend you discuss with an experienced financial planner. These include managed funds, share portfolio, property, small business incubators, provident funds and a host of other options that require careful consideration, budget analysis and strategic planning.
Conversations surrounding superannuation and what the decreasing numbers are showing as the market shifts could cause concern for some investors with a super fund (which is most Australians). A superannuation investment is a long-term proposition represented as units in companies and businesses in Australia and abroad. The value of those units fluctuates with the market but as long as you are investing in good quality companies, your portfolio capital is strong and you continue to hold and grow these assets, the value of your portfolio will grow over time. This is why it is imperative to work with a financial planner, so they can help you understand and explore the market taking advantage of well-priced, quality investments.