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Hi Team,

My last two "financial intelligence" emails have covered the importance of having a simple money management plan and the power of compound interest. Today I am going to cover the main types of investments, so you can start to determine where they might fit in to your financial future? However, I would like to start by discussing the concept of risk verses returns. A quote that is often used in many areas of life is "Unfortunately there's no reward in life without risk", and this is particularly true in all forms of investing. Generally speaking, the higher the risks when investing your money the higher the potential =
growth returns. As previously outlined, investing for financial independence is a long term game and the keys to success are investing in a stable/secure environment that offers decent growth returns and modest fees and taxes.

"Investing should be more like watching the grass grow. If you want excitement take $1000.00 and go to the casino",  Paul Samuelson.

Broadly speaking there are three main types of long-term investments, shares, property & superannuation. Each of these investments can be accessed either directly (by buying individual shares, buying properties, or having a self managed super fund) or indirectly (by investing in a managed share fund, a managed property fund, or a managed super fund). Direct investments can offer significantly higher returns but can also be a lot more risky and generally only appeal to the sophisticated investor. However, indirect or managed investments are usually more diversified (i.e. spread across a broad range of shares and/or property types), which greatly reduces the long term risks while still returning decent returns. Managed investment funds can be structured for your individual requirements and your stage of life and fall into three broad  "investment mixes"; Growth, balanced or conservative. Below is a table showing the typical structure of these three different investment mixes compared to a cash savings account.

Managed share funds are usually a blend of Australian and international shares, which are historically very volatile. However by investing across a broad range of industries and over a longer periods of time, the frequent ups and downs of share prices can be smoothed out and the average long-term growth becomes the main focus for a managed fund.

(Attached are two documents showing the average returns of various share markets over a 30 year period). The first attachment is a list of returns from 1985 to 2015 showing that the value of the ASX (Australian Share Index) grew by an average of 10.8% annually. The second attachment is a graph showing the volatility of various stock markets form 1988 to =
2018 and, interestingly, a slightly lower average annual return from the ASX of 9.1% due to the recent drop in Australian share prices over the last 12 months. Both of these documents are from "moneysmart.gov.au" a website produced by ASIC (Australian Securities & Investment Commission), which is a very useful source of information on investing in shares and managed funds.

ASIC have also published an excellent E-Book, "Investing between the flags: A practical guide to investing" which can be downloaded for free from the Moneysmart website which is a comprehensive and easy to read guide to investing.

Thanks for reading and see you all this Thursday at the DDB Team meeting.
David.