Investment understanding the basics

Understanding the basics

Whatever your financial goals, investing can be a great way to help you achieve them sooner. But where do you start? And what types of investments are right for you?

Five simple tips to start investing

  • Identify your personal and financial goals
  • Make a budget, and work out how much you have to invest
  • Work out what sort of investor you are, and how much risk you're willing to take
  • Start investing. The sooner you start, the sooner you'll reach your goals
  • Get good advice. A financial adviser can develop a plan tailored to your personal needs and goals.

What am I trying to achieve?

If you're thinking of investing, the first thing you need to do is work out what your personal and financial goals are.

Identifying the things in life that are important to you – like owning a house, starting a family or having enough for the kids' education – will help you work out the lifestyle you want, and the amount of money you'll need to achieve it.

Understanding your goals will give you the basis for developing your investment or financial plan.

OnePath's financial health check (913kb PDF) can help you get started. By answering a few simple questions, you'll see what shape your finances are in, and work out where you might need to make some changes to meet your financial goals.

How much do I need to invest?

No matter how little you have, you can start investing for the future. The longer your investment has to grow, the better the results. Even if you can’t afford to invest a large amount, you may be able to start a small but regular savings plan.

Why is a budget important?

The simple truth is that the only money you’re likely to save and invest is the money you don't spend. But many people only have a vague idea of how much they actually spend.

With a budget, you can see exactly where your money goes and how it's being used. This allows you to:

  • identify surplus money that can be used for investing
  • see where your money is being spent, and help you decide whether to continue spending money in the same way, or reduce your outgoings and increase your savings
  • cope with surprise expenses
  • manage your finances, and give you more confidence in your financial future.

What sort of investor am I?

Once you've identified your personal and financial goals, and worked out the amount you have available to invest, you need to understand what type of investor you are.

All investments carry some form of risk, and you need to be comfortable with the amount of risk you are willing to take.

Talking to a financial adviser is the best way you work out your risk profile. But to give you an idea, ask yourself the following questions:

  • How much do I need to reach my goals?
  • Do I have a good understanding of the financial markets?
  • What sort of return do I want on my investments – stable, fast-growing etc.
  • Am I willing to take a risk to achieve a higher rate of return on my investments?

OnePath's Investor profile can help you answer these questions and work out how much risk you're willing to take. With this information, and an idea of your goals, you and your financial adviser can develop a plan tailored to meet your specific needs and financial situation.

What’s the relationship between risk and return?

Risk and return are closely correlated – higher risk generally means higher returns, while lower risk usually means lower returns. As an investor, this is known as the risk/return trade off.

Understanding risk and return is fundamental to achieving your investment goals. This is because understanding your risk tolerance will decide the type of assets you invest in.

Your financial adviser is the best person to help you work out your risk profile, and choose the investment options that best suit your needs.

What are asset classes?

Asset classes refer to different types of investments. There are four main asset classes you can invest in – cash, fixed interest, property and shares. The return you achieve, and the level of risk, is different with each asset class.


Cash is the generic term for investments such as short-term bank deposits and treasury notes. Cash is considered the least risky of the major asset classes – generally providing investors with a moderate regular income, but little chance of capital gain.

Fixed interest

Fixed interest investments, or bonds, are effectively loans provided by investors to corporations and government bodies in return for interest payments over the life of the bond. Bonds carry a low to medium risk, and predominantly reward investors with a regular income stream – generally higher than that earned by cash investments.


Property is considered a growth asset, and involves investing in residential or commercial property, or via a listed property trust (LPT). LPTs invest in a range of property – including residential housing, shopping centres, office buildings, factories, and hotels. As property is a growth investment, capital gains may be expected over the long term, in addition to ongoing income from rent. Property is considered moderately volatile.


Shares are securities representing ownership of a company. When you buy a share in a company, you become a joint owner of the business. As a shareholder, you may enjoy the company's profits through dividends. You can also sell the shares, hopefully for a capital gain, sometime in the future. Shares are the most volatile of the major asset classes in the short term, but can outperform other asset classes over the longer term.

Investing in different asset classes is a good way to reduce risk. By spreading your funds across different asset classes you remove the risk of putting all your eggs in one basket – i.e. the risk that you will choose the wrong asset class at the wrong time.

What is a managed fund and how does it work?

A managed fund combines your money with that of other investors to form a single investment pool. Specialist investment managers then invest the money on behalf of the investors in a single asset class, or a range of asset classes.

The beauty of managed funds is that they can invest in a range of asset classes – including shares, property, fixed interest and cash. Exactly what type of assets your fund invests in depends on the fund’s objectives.

Managed funds offer a range of benefits including:

  • Diversification – invest across a range of asset classes
  • Access to experts – who make and manage the investments on your behalf
  • Convenience – paperwork and administration is handled by your fund manager
  • Access to major investment classes – a managed fund can give you access to international and local investment opportunities
  • Economies of scale – managed funds possess buying power when the dollars of investors are pooled together which may not be available to the individual.

By investing in a managed fund, you can benefit from a diversified portfolio beyond what most investors could achieve themselves. You can also save yourself the time, cost and effort of managing your portfolio.

Your financial adviser can also explain how managed funds work, and help you select a fund to best suit your needs and risk profile.

This has been provided for general information purposes only. It does not purport to recommend any particular adviser or provide you with financial advice. In addition to seeking financial advice, potential investors must always read the Product Disclosure Statement for the relevant product before making an investment decision.