Investing can sound complex and is often put into someone’s “too-hard” basket, but at its core, it’s about putting your money into assets like shares or property with the expectation that they’ll grow and generate profits or income over time. It’s that simple!

Why should you invest?

The main reason to invest is to grow your wealth.

We grow up being told that keeping money in a savings account is generally considered safe, however, what our parents often forget to mention is the returns from savings accounts are usually minimal.

At Girls that Invest, we like investing because it offers the potential for your money to work for you. This growth can help you achieve significant financial goals, such as buying a home, funding education, or ensuring a comfortable retirement. However, it is important to remember that investing also carries risk. Therefore, investors should be mindful of both the potential for growth and the possibility of losses. The key to successful investing is to have a long-term time horizon.

Types of investments

There are various types of investments, each with their own level of risk and potential return:

  • Shares: Owning a small part of a company and allowing your money to grow as the share price rises. Shares can offer high returns but come with higher risk due to market fluctuations.
  • Bonds: Loaning money to corporations or governments, who pay you back the loan + some interest over time. Generally lower risk than shares but provide lower returns.
  • Managed funds and ETFs: Collections of shares and bonds managed by professionals or computers, offering diversification and reduced risk. These are a good place for beginners to start.
  • Real estate: Investing in property can appreciate in value over time and generate rental income. It requires a significant initial investment but can be highly rewarding.
  • Alternative investments: Includes assets like art, commodities or cryptocurrencies. They can offer high returns but are often more speculative and riskier.

Understanding risk and return

Every investment carries a degree of risk. Generally, the higher the potential return, the higher the risk. Always remember to assess your risk tolerance before investing. Young investors might opt for higher-risk investments like shares, while those nearing retirement might prefer the stability of bonds. Little tip though: just because an investment is risky, doesn’t mean you automatically will be rewarded more. After a while, increasing your risk will not increase the level of reward.

The power of compounding

One of the most compelling reasons to start investing early is the power of compounding. Compounding occurs when your investment earnings generate their own earnings. Over time, this can lead to exponential growth of your investment portfolio. For example, a modest investment made in your 20s can grow substantially by the time you retire. The general rule of thumb is that your money doubles every 10 years, assuming a 7% rate of return.

Getting started

To start investing, you don’t need a large sum of money. Many platforms allow you to begin with a minimal amount. The key is to educate yourself first, set clear financial goals and create a diversified investment portfolio. Consider consulting a financial advisor to tailor an investment strategy that suits your needs and risk tolerance.

Conclusion

Investing is a powerful tool to build wealth and achieve financial security. By understanding the basics and starting early, you can make informed decisions that pave the way for a brighter financial future for yourself and family.
 


To learn more about investing, go to Investing in the CommBank app.

This content is brought to you by Girls that Invest.