Investing for Beginners Explained – Forbes Advisor Australia

With prioritised goals in place, Brady said it was easier to determine how much of the money you have available to invest should be allocated to achieving goals on each time horizon and the strategies you’ll use, including how much risk you’re willing to take.

“Normally, the very general rule of thumb is if it’s a shorter time horizon, so let’s say next 12 or 24 months, we’re typically quite conservative in how we would deploy those funds,” she said.

“When we talk about medium to longer term goals, if we’ve got more time to ride out market fluctuations and more volatility that innately exists when you’re investing. Then we can accept more risk along the way because we’ve got more time for it to come back—and we can actually buy at lower rates, which can help us expedite that growth.”

Brady said long-term strategies typically involved aiming for growth of the underlying asset—such as a rise in share prices or increase in property value. However, income may be a higher priority for some, resulting in them seeking assets with a good distribution history.

“As an example, they might buy an investment property in an area where there hasn’t been as large growth but they know that the yield that they get is higher than other areas.”

It’s also important to remember that every time you buy or sell an asset, you’re creating a position—either a capital gain or a capital loss—that will affect how much tax you pay, Brady told ForbesAdvisor.

“And so, if we make money, we’ve got a capital gain. That’s exciting. If you hold the asset for more than 12 months, there’s a 50% discount (on capital gains tax owed).

“That becomes really relevant in making sure that you’re not considering really short term strategies, because you may not realise that there’s quite a significant tax implication for doing that.”

“Or there’s a capital loss, so you sell for lower than what you purchased for, and that may be used to offset other gains.”