20 February 2008

Investment principles to keep in mind

1. Time frame – how much time do you have to invest or save? Time is an important factor when looking at an investment. Your current age, your future work plans, your retirement plans and even your life expectancy may all influence the type of investment options you choose when considering your retirement savings plan. The longer you have to save, the more time is on your side, in terms of making your investments work for you. In addition, you may choose different investments if you have a long time to save for retirement than if it is just around the corner. Members should be aware that attempting to time the market can be fraught with danger and one of the most powerful rules to remember is “time in the market” (i.e. being invested across all cycles and market conditions produces superior long-term returns).
   
   
2. Diversification - Diversification is about spreading your investments across a range of asset classes, countries and investment managers, to help reduce short-term volatility and increase long-term returns (i.e. don’t put all your eggs in one basket!). Diversification does not guarantee a better return; it simply reduces the risk of loss if one asset class underperforms. The aim of diversification is to reduce the risk of losing your money if one investment produces poor results. Members should review their investment option to ensure that there is adequate diversification across the four main asset classes (cash, fixed interest, property and shares) and protection against inflation (i.e. maintain the real purchasing power of your money). Vision Super already offers members a range of diversified investment options. With over 80% of all Vision Super members invested in the Balanced Growth option, the benefits of diversification are already being achieved.
   
   
3. Risk profile – what type of investor are you? It is important to understand the type of investor you are, in terms of investment risk. What you consider acceptable in terms of investment risk may not be acceptable to someone else. Your risk profile will depend on your time frame and view of the relationship between risk and potential return. Risk describes the likelihood that your investment will earn less than expected or even drop in value. Return is the rate by which your investment increases or decreases. You need to consider the level of risk you are prepared to accept. This includes the potential risk of loss of some of your capital in the short-term and the potential risk that your retirement goals may not be met in the longer term. Choosing lower risk options when you have a longer time horizon can be less rewarding than higher risk options as the cost of living (inflation risk) can catch up or even surpass the rate your investments are growing. You need to consider all these factors when choosing your investment option. To help you find out what your Risk profile is please go to our questionnaire What type of investor are you? When you finish entering your responses, the questionnaire automatically calculates your score and provides you with an indication of the investment option that may best suit you.

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