1.1 The logic of investing


What this topic covers:

  1. Going beyond saving
  2. The opportunity to grow long term wealth
  3. Aiming for higher returns
  4. Risk vs. reward


Why invest?


If you’ve managed to accumulate some savings and have more money coming in than going out, that’s great. However, savings – particularly when interest rates are low or inflation is high – may not offer you the best return on investment.


Investing, whether that’s in shares or other asset classes, could put you on track to grow your wealth over the short, medium and long term, and help you meet some of life’s goals:

  • • Travel overseas
  • • A new car
  • • Owning a home
  • • Children's education and more

Depending on your risk appetite, there are a range of investment options open to you.



The potential for higher returns


While cash savings accounts or term deposits offer low risk returns, the gains are relatively small compared to investments such as shares and property – which have historically outperformed cash through capital growth and more.



The impact of gaining an extra 1% or 2% per year on your portfolio might seem minimal, but it can make a material difference over a long period of time due to the power of compounding (we’ll cover this later) – provided you’re prepared to 'accept additional risk' of loss. Getting your money working for you and creating the potential for higher returns is the whole point of investing.

 


"The more your money works for you, the less you have to work for money."

- Idowu Koyenikan (Bestselling Author of 'Wealth for All')



Risk vs. reward


When you make investments, it’s important to have realistic expectations about how they might perform. Hopefully, your money will grow over time – but there’s also a chance that it won’t.


Perhaps the biggest risk of all though is jumping in before you’re properly prepared. As you progress through CommSec Learn, we’re here to help support you with knowledge, tools, and ideas on how to invest.



Next topic: 1.2 The fundamentals

Disclaimer

CommSec Learn is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a market participant of the ASX & Chi-X Australia, a clearing participant of ASX Clear Pty Limited and a settlement participant of ASX Settlement Pty Limited.

 

 

Disclaimer

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