The next generation of investors are here and ready to take on the investment world. They are enthusiastic but limited in knowledge. This article provides advice on how to start your investment journey and the costly mistakes that should be avoided.

You’re young, expecting a satisfying future brimming with friends, family and a comfortable lifestyle.

You’re a Next Generation Investor, likely aged between 18 and 25, and you’re starting to think about financial security.

According to an Australian Stock Exchange study, nearly a quarter of all investors over the past two years were Next Generation Investors. Additionally, some 27% of surveyed people under age 25 intend to invest over the next year.

The excitement of embarking on a journey toward financial freedom is common, as is confusion, after all, in the rush of enthusiasm, how can you ensure you get the decisions made for the future, right today? Further, what are investors rookie mistakes to watch out for?

Here are a few that can be easily avoided.

Not clearing debt first

Student loans and credit cards have a knack for eating away income. We’re not saying don’t save at all, but we’re recommending you clear as much debt as possible before committing to serious investments.

Track your spending to spot potential savings, then channel that cash towards your debts. Every little bit helps.

No strategy

Desire to build wealth through investment is not a strategy. Saving for a new car, a home deposit? Perhaps you’re planning to retire in your 40s? The end game determines which investments will be most suitable.

Now, consider how you feel about risk and whether you’ll need access to your money. Successful investment strategies are planned.

If it feels overwhelming, seek professional advice to help you build your strategy. You’ll be surprised at how inexpensive a financial adviser can be.

Not diversifying

Generally speaking, the higher the potential return, the higher the potential risk.

Market-linked investments, like shares, can be big-earners, but you’ll have to ride economic ups-and-downs to get there – sometimes for ten years or more.

If this worries you, consider lower-risk investments. Conservative in nature, their returns are generally lower, but you’ll probably sleep better.

Decide how much risk you’re comfortable with. You may be better off minimising exposure to high-risk assets by diversifying your portfolio with a variety of investment types.

Trying to predict the market

Investment markets are notoriously unpredictable; even experienced traders sometimes get their timing wrong. Buying shares at the wrong time can mean you pay more than you should, similarly selling at the wrong time can result in losses.

Short-term buying and selling might seem exciting, but it’s a fast-track to losing money. The way around this, as previously mentioned, is research, diversification and being prepared to stay the distance.

The magic word is patience.

Review

No investment is a set-and-forget scheme. Always keep track of your savings and your ongoing investment plan, ensuring that it continues to align with your goals, particularly as they change over time.

A flash car may be your priority today, but fast-forward a couple of years and perhaps marriage and children are your priorities.

As your goals change, so must your investment strategy.

A few other things…

Fees and taxes are unavoidable and various investments attract different expenses and tax structures. Find out what you’re up for before making financial decisions.

Feeling lost? The Australian Stock Exchange offers free online courses and the Government’s MoneySmart website has a free info Starter Pack to get you underway.

Of course, nothing beats professional advice tailored to your needs. Be sure to seek specialist advice from your accountant or financial adviser.

Strategic investing sets you up financially, and helps create a savings habit for life. Your financial future begins today.

Visit https://www.hejazfs.com.au/investments/ to learn more about our Islamic investment options or give us a call at 1300 043 529 to talk to our financial adviser about what best suits your situation. Our financial advisers can help you understand your risk comfort level and design an investment strategy that is right for you.

These are the 9 golden rules of investing to hold on to despite market conditions. While markets are performing well it is easy to sit back and watch investments rise in value. However, it is a different story when markets are not performing so well and uncertainty abounds. Holding your nerve is not easy. So how do experienced investors handle this? Here are 9 tips:

1. Recognise the cycle

Financial cycle are all prone to move in cycles. Sometimes the throughs feel like they will last forever but they do eventually end and move on to higher levels.

2. Diversify

Diversifying is one of the most important rules for successful investing. By diversify across asset classes, markets, geographical regions, managers or companies, your risk is effectively spread out. This might minimise your potential losses and smooth out your investment returns over the longer term.

3. Avoid crowds

The worst time to invest is when everyone else is rushing in. Become a contrarian investor whilst still applying fundamental quality tests.

4. Buy and hold

Buy quality investments and hold them – at least until they have had time to achieve their expected return. Very few investors make money through speculating.

5. This time is not different

When the market goes dramatically up or down there is a tendency to cry “this time it is different.” This time is definitely not different.

6. Do not be swayed by high returns

Do not chase last years winners instead, look for this year’s opportunities.

7. Invest regularly

Implement a disciplined savings plan often referred to as “Dollar Cost Averaging” – a little bit often can build up to a lot.

8. Consider tax implications

If you are a wealth builder, seek capital gains in preference to income. If you need income, investigate different structures that help to minimise tax.

9. Have a regular check up

Review your investments and strategy on a regular basis. Work with a professional financial adviser who will help you achieve your goals.

You can also consider investing in a Halal managed fund where experienced portfolio managers will help you manage your investments. At Hejaz, our investments are actively managed to ensure that your investments are compliant and performing. Unlike others, we have an inhouse Islamic investment team we do not outsource this critical function, setting the management of your wealth as our priority.

Visit https://www.hejazfs.com.au/investments/ to learn more about our Islamic investment options or give us a call at 1300 043 529 to talk to our financial adviser about what best suits your situation. Our financial advisers can help you understand your risk comfort level and design an investment strategy that is right for you.

Managing your investment risk

There is hardly anything in life that doesn’t involve taking some risk – even getting out of bed in the morning! Many people are fearful of investing because all they focus on is the risk of losing their hard-earned money. Others look for great returns and forget about the risk entirely. As with anything, there has to be a balance.

In the majority of investment structures, risk and return are related. The more risk you take, the more return you can potentially make (and vice versa). But there are ways in which this “risk” can be managed without defaulting to low-return investments.

Here is a handy checklist to keep you focused on maintaining a balance and to minimise your investment risk.

1. Risk and return

To get ahead, your investment returns needs to take account of tax and also stay ahead of inflation. Many low-risk investments such as bank savings accounts often do not achieve that goal. To make any gains, you must take calculated risks.

2. Learn more and be aware

Many investment disappointments come from lack of knowledge. Learn how things work. The more you understand about investing and financial markets, the better you will become at choosing the right investments for you.

You will also be less likely to act blindly on a tip from a family member or friend, without first doing your own research. You must ask questions until you understand the investment. If you do not understand it, do not invest in it.

3. Rely on experience

Software and mathematical models can increase understanding but in the end it is people who make the difference. Smart investors seek the help of experts.

4. Never assume

It is easy to make assumptions and accept the information you are given. You must test the assumptions through questioning.

5. Understand the risks

It can be tempting to pretend that a risk is small if something sounds really good. You must accept that risk always exists. Discuss it openly with your adviser so it can be managed. Think about your goals, how soon you want to access your money and your risk appetite will help you make a decision on which investments are right for you.

6. Mix up your investments

Avoid putting everything you have got into one investment. Spreading your money across different types of investments may protect you from sudden market falls and deliver more consistent returns over time. The larger number of small and different investment risks you take can provide a higher probability of more consistent returns.

7. Stay focused

Be consistent and think long term. A rigorous and systematic approach will beat a constantly changing strategy every time. While there are exceptions, fluctuations in the value of your investments they should even out over time. So the longer you stay invested, the less investment risk you are exposed to.

8. Use common sense

Investing requires you to make judgements rather than following a script. It is better to be approximately right than to be precisely wrong.

9. It is not just about returns

It is all about risk and return. Accepting and managing the risk may help you realise the return you desire.

Just like achieving other goals in life, you need to decide how much risk you are prepared to take in chasing higher rewards. If the risk is just too much to bear, you can consider putting your money in one of our premier Halal managed funds where a team of experienced Islamic portfolio managers will help you manage your investments.

Visit https://www.hejazfs.com.au/investments/ to learn more about our Islamic investment options or give us a call at 1300 043 529 to talk to our licensed financial adviser about what best suits your situation. Our financial advisers can help you understand your risk comfort level, and design an investment strategy that’s right for you.

Investing in shares

Investing in the sharemarket provides a way of participating in the future profits and growth of Australian and international businesses. In Australia, there are more than 2,000 companies listed on the stock exchange, representing a market capitalisation of $1.69 trillion*.

Risk/return characteristics

Shares are generally considered a high-risk and high-return investment and are suitable for longer-term investors.

Historically, Australian shares have provided long-term growth well above inflation. However, shorter-term sharemarket returns have experienced higher volatility at times.

Sharemarket investors may expect a negative return approximately once in every five years or so, which is why shares are suited to longer term investors. Time greatly reduces, but does not eliminate, the volatility in returns from shares.

Sharemarkets move in cycles, reflecting the underlying strength of the economy, political factors, industry trends and market sentiment. On any given day interest rate and inflation expectations, company profits, dividends, economic growth figures and the rise or fall of our dollar may have an impact on share prices.

Income and capital growth

While shares are primarily a growth asset, they may also provide a good source of income.

Most companies distribute a proportion of their profits in the form of dividends. Companies that pay high dividends tend to be blue chip companies like those in the banking, insurance and retail sectors. Some companies, like those in the mining sector or newer industries like biotechnology, may retain dividends to fund future research, expansion or exploration.

Actual yields may change dramatically from year to year and vary from company to company. If company profits are not growing, dividends are likely to be stable and if profits fall, a company may have to reduce dividends.

Tax benefits

Dividend imputation is the main reason Australian shares are so tax effective. Given companies have already paid tax at the company tax rate, investors can use franking credits to offset the amount of tax they pay on dividends and have any excess credits refunded. The higher the franking level the greater the benefit.

Some companies pay fully franked dividends, with the maximum imputation credit of 30 per cent (equal to the company tax rate). Other companies pay partially franked dividends where the imputation credit will vary depending on the amount of tax they have paid on their profits.

Implementing your portfolio

You can invest in the sharemarket directly or through a managed fund. One of the major benefits of a managed fund is that you can access a much wider range of investments than you can investing directly yourself. Another is that your assets are professionally managed.

Index-tracking traditional index funds and Exchange Traded Funds (ETFs) invest in all or a representation of stocks in a selected index with the aim of producing index returns, before fees. By contrast, many active Australian share funds hold between 30 and 70 stocks, out of a universe of around 200 to 300 securities depending on the index used.

*Australian Securities Exchange. End-of-month valuation, July 2015.

At Hejaz Financial Services, our investment products are build and managed by expert teams with years of experience and deep, human understanding of markets. Learn more about our Premier Islamic Financial Services here.

Getting started with investing

There are many different ways to invest and the solution you choose will depend on your individual situation: how much you are investing, the degree of access you need to your money and what your financial goals are, both professionally and personally. It’s also important to get clear on the level of risk and return you want to be exposed to.

Diversification

All investments involve risks. Diversification is a way of managing the risks associated with investing. It involves spreading your money across different asset classes and investments, so as to limit the impact of negative events on any one asset class or investment. Diversifying across asset classes protects you against underperformance in any one asset class. Your asset allocation will reflect how cautious or aggressive your investment strategy is.

Can you comfortably watch your balance go up and down?

Some people find it easy to stay relaxed while their investments rise and fall in value. Others feel nervous if their assets drop in value by even the tiniest amount.

If you’re going to lie awake at night worrying, it’s not likely to be worth the personal cost, no matter how high the returns you might make.

Talking to someone about your ability to cope with financial stress can help you decide how you feel about taking on investment risk, even if it’s just a member of your family or a friend whose opinion you respect.

A professional financial planner should also be able to help guide you through some different options and outline the different levels of risk involved.

How to reduce your risk

No matter what your temperament, exposing your hard-earned savings to any kind of risk will always be a bit scary – especially if you’re doing it for the first time.

Some simple strategies to reduce risk that even the professionals still follow include:

• Think long-term: While there are exceptions, fluctuations in the value of your investments should even out over time, so the longer you stay invested, the less investment risk you are exposed to.
• Choose the right investment for you: Thinking about your goals, how soon you want to access your money and how likely you are to worry will help you decide which investments are right for you.
• Try to avoid putting everything you’ve got into one investment: Spreading your money across different types of investments may protect you from sudden market falls and deliver more consistent returns over time.
• Learn how things work: The more you understand about investing and financial markets, the better you’ll become at choosing the right investments for you. You’ll also be less likely to act blindly on a tip you might hear from a family member or friend, without first doing your own research.

Getting started with investing may be daunting, but that’s no reason to delay putting the various markets to work. Our financial advisers can help you understand your risk comfort level, and design an investment strategy that’s right for you.

At Hejaz Financial Services, our investment products are build and managed by expert teams with years of experience and deep, human understanding of markets. Learn more about our Premier Islamic Financial Services here.

Whether it’s taking a more active interest in your superannuation, starting to build an investment portfolio, or even trying your hands at playing the stock market, we can all benefit by understanding the language and key concepts of investing. Here’s a quick introduction to investing.

Asset classes

There is a huge range of potential investments out there, and these can be grouped together in asset classes that are based on shared characteristics. There are many asset classes, however we will focus on the 2 most mainstream and major ones shares (or equities) and property.

• Shares give investors part ownership (usually a very small part) in specific companies. The share market sets the value of each share and prices can fluctuate significantly, even from day to day. This price volatility means that, relative to other asset classes, shares are higher risk, particularly in the short term. However, investors expect to be rewarded for taking on this risk by the potential for shares to deliver higher long-term gains than the other asset classes. Shares may also provide regular income in the form of dividends. It’s common to split this asset class into Australian and international shares.

• Property also provides investors with full or partial ownership of growth assets. Income is received in the form of rent and property also has a strong history of providing capital growth. It is common to further subdivide this asset class into residential and commercial property, as these subclasses can have their own property cycles. As property can, at times, fall in value, it is considered a medium to high-risk asset class.

Why are asset classes important?

One of the golden rules of investment is that when seeking higher returns, investors must take on a greater degree of risk. As it relates to investment, risk can be thought of as volatility or uncertainty. Some quality investments may provide a high certainty of a particular return. They are low risk, and the returns they offer reflect this. However, for any given share, we don’t know what its price will be in a week, a month or a year. Prices may be volatile, the return is uncertain, so a share is a higher risk investment. However, that risk can be a positive thing – upside risk – which is the potential for the share to generate a higher than expected return.

Asset classes bundle together investments with similar risk and return profiles. By blending these asset classes together in different proportions – a process called asset allocation – investors can construct portfolios that provide levels of risk and return that suit specific needs. Typically, a retiree may want a portfolio that minimises their risk and provides more stable returns. A 30 year old with an investment time horizon of decades may be happy to take more risk, in the knowledge that, over the long term, growth assets (shares and property) have delivered the highest returns.

This blending of different asset classes results in diversification, which is a critical risk management tool. As different asset classes over and under perform at different times, mixing different asset classes lowers the volatility, and hence the risk, of a portfolio.

As far as returns are concerned, studies have shown that over 90% of a portfolio’s performance is determined by the asset allocation. It’s vastly more important than individual investment selection or the timing of purchases and sales.

Indexing

There are many different indices that track the performance of each asset class and its subclasses. The Australian All Ordinaries Index, for example, follows the fortunes of Australia’s 500 largest companies. The Australian Fixed Income Index Series tracks the performance of higher quality Australian bonds.

Given the importance of asset allocation and the difficulty of picking winning and losing shares or other assets, many investors are content to accept the performance delivered by each asset class. An easy way to achieve this is to invest in index funds. With a small number of these funds, it’s possible to deliver diversification both across and within asset classes, along with any desired asset allocation.

Help is at hand

Of course, there’s more to investing than can be conveyed in a short article, but that’s no reason to delay putting the various markets to work. Our financial advisers can help you understand your risk comfort level, and design an investment strategy that’s right for you.

At Hejaz Financial Services, our investment products are build and managed by expert teams with years of experience and deep, human understanding of markets. We are focused on taking your investment to a whole new level, setting the management of your wealth as our priority.

Learn more about our Premier Islamic Financial Services here.

The foundations of successful investing

This article explains the important foundations of a strong investment portfolio based on 4 principles – quality, value, diversity and time.

Establishing an investment portfolio can be likened to building a home. The most destructive, yet unpredictable predator to the structure of a home is the weather. Even in these most technically advanced days, we are still unable to accurately predict the weather.

Like the weather, the future of the global economy can be the most unpredictable and destructive threat to your investment earnings. But with a carefully built portfolio based on sound foundations, you have a much better chance of weathering a financial storm.

Investment principles

The foundations of successful investing and a strong portfolio rely on four key ‘pillars’ or investment principles. Quality, Value, Diversity and Time.

We are probably all tired of the old line, “don’t put all your eggs into one basket” – meaning to diversify your portfolio – but that is only one pillar on which to rely. The other three are equally important. Forget about just one and you are setting yourself up for a collapse.

Let us briefly explain why all four pillars are crucial to your investing success.

Quality and Value

If we look at the first two pillars, quality and value, it’s obvious this means to look for assets that are expected to provide higher returns relative to their risks. Applying this to shares, quality companies should have a sound basis to their operations and growth; that is, their earnings are not driven by fads. This however, might mean they take time to deliver. Remember that investing in the share market is generally a long-term strategy.

Quality and value don’t always go hand in hand. Quality stocks may trade at such high prices that they offer low initial value or it could be that expectations for these companies are sometimes too high. The key here is quality… the expectation is that they will be around for a long time, not just a good time.

Diversify

This takes us back to diversity. Diversity acts like the scales in a portfolio, providing balance. True diversity in a portfolio gives the investor the opportunity to take advantage of “hot stocks” or asset classes, whilst balancing out the risk with quality stocks and asset classes. It can provide a buffer against mistakes in assessing value because nobody gets it right all of the time. A well-balanced portfolio should be designed to cope with occasional losses.

Time

And finally, the pillar of time applies to the previous three. It can give you the best chance of success. Every market will suffer periodic downturns, however over time the upturn will always triumph. The golden rule is don’t panic and get caught up in the fear and greed cycle. It’s about time in the market, not timing the market.

Past performance is not indicative of future results, nobody can successfully predict the future of the global economy. The best way to set yourself up for investing success is to make sure your investment portfolio is based on the four solid foundations and monitored consistently.

At Hejaz, our investment products are build around the core foundations and is managed by expert teams with years of experience and deep, human understanding of markets. We are focused on taking your investment to a whole new level, setting the management of your wealth as our priority.

Learn more about our Premier Islamic Financial Services here.