7 simple steps to get on the investment ladder

By Vanguard

The basics

 

Entering the world of investing can be a life-changer for people of all ages. Here are seven simple steps for beginners to start their wealth journey.

 

1. Do a financial stocktake

Before taking the leap into investing, evaluate your financial position. Assess your income, savings, living expenses and, perhaps most importantly, your personal debts (you may focus first on clearing high-interest credit card debt). An honest assessment will give you clarity about the funds you have available to invest.

 

2. Set your goals

Are you saving for a home deposit? Travel? Retirement? Long-term wealth? Having real targets enhances your prospects of success. During this early phase, seeking the guidance of an experienced financial adviser to help lay your investment foundations can pay dividends.

 

3. Determine your risk profile

Investing carries an element of risk. How much market volatility can you handle? Could you sleep at night if your share portfolio dropped 20%? Risk profiles and goals can differ markedly from person to person, depending on income levels and lifestyle and retirement goals. Some investors want a simple, low-risk managed fund. Others may want to take more risks on potentially high-return tech stocks, for example.

 

4. Start small and contribute consistently

You do not need a large lump sum to start investing. Vanguard lets you get started from just $200 in our managed funds, exchange traded funds (ETFs) and Australian Securities Exchange (ASX) direct shares. One common approach is making manageable, regular contributions to benefit from compounding growth, which accumulates over time and can help build long-term wealth. For example, Vanguard’s Auto Invest feature can help you make regular automated investments, rather than relying on willpower.

 

5. Diversify your assets

Diversification is a tried-and-tested investment strategy that can reduce your portfolio’s overall risk and volatility. This entails investing in different asset classes, sectors and geographies to spread your risk and reduce the overall portfolio impact if one sector fails or performs badly.

 

6. Understand your asset class options

The key portfolio options are as follows:

• Shares – by buying shares, investors become part owners in companies and can benefit if the company increases in value or pays dividends.
• Bonds – when governments or corporations want to borrow money, they can issue bonds, which are securities that usually pay investors a fixed interest rate.
• Cash – a low-risk, short-term financial instrument that typically provides stable and regular income through interest payments.
• Managed funds – an investment where your money is pooled together with other investors and managed by a professional.
• ETFs – an ETF is a pooled investment vehicle that you can buy or sell on an exchange, like the Australian Securities Exchange. In Australia, most ETFs — including many of Vanguard’s — are low-cost, index-tracking investments.

 

7. Keep learning and reviewing

Educate yourself about market basics, fees and investment options. Regularly review your portfolio to ensure it still matches your risk appetite and goals.

 

^{Important Information investing is subject to risk, including the possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure profit or protection against a loss.}