It’s time to invest in your future. This means putting your money to work. But which investment is the best type?

We are regularly asked ‘what should I invest in?’. The answer isn’t straightforward because everyone is different. There are six questions you need to be able to answer before we can offer any investment advice.

1. What are Your Goals?

What are your financial goals for your life? Do you want to build your house deposit faster, ortravel the world and not worry about money? Do you want to own Balenciaga’s entire range (or perhaps a Ferrari)? Or, is this money for your retirement, or for helping out your family financially?

Depending on what your goals are for this money, there are different strategies and ways to achieve this.

2. How Much Do You Want to Invest?

Do you have a spare $10k to invest (or $100k), or are you looking at taking a little off each salary payment you get?

The amount of money you want to play with will dictate the type of investment. Some types have a high entry level, often $10,000 or even a lot more. And they aren’t the kind of thing you can just pop $10 into when you have it available. Then, there are apps like Sharesies, which allow you deposit funds as you wish, starting with as little as one cent.

3. Are You Hands-Off, or Hands On?

Do you have the confidence to manage your investments? Do you understand finance? If not, do you have the time and energy to teach yourself how to do so?

Investing can take a lot of effort, or very little. For instance, a term deposit with the bank or a managed investment portfolio requires very little effort and can offer solid returns. Alternatively, you can play the stock market yourself, but this takes a lot of time to understand and maintain.

To truly analyse a business in order to understand if you want to invest in it, you’ll need to understand their basics, such as:

• Turnover/ revenue
• Market share
• Net profits
• Debt to equity ratio
• Price to earning ratio
• Price to book value ratio
• Credit rating
• Their product/ service

If you over-commit yourself, you’ll soon run out of time to devote yourself to your investments and the strategy will fail.

If you do not have the time and energy for a DIY approach, you can still invest in the stockmarket through other channels such as managed funds. Or if you invest in property, you could use a property management company to deal with day-to-day tenant matters if you’re time poor. If you have a KiwiSaver account, you have already found the easiest way to invest.

4. How Much Time Do You Have?

When do you want your money back by? And, how much money do you need from that investment?

For example, say you need $100,000.

If you invest $100 a week at 10% rate of return, you’ll get there in a touch under 11 years

But if you need that $100,000 in five years, you’ll either need to increase the amount you’re depositing to $300 a week, or find an investment with a higher return (in this example, you’d need an interest rate of almost 50%, which is impossible unless you’re a Mafia Don running a drug cartel).

Also, some investments such as term deposits are for a fixed term, and you could face penalties if you withdraw early. Also consider if you need the money from your immediately, but there’s been a market downturn, you could face losing money if you sell at the wrong time.

Then, there’s investment options such as property. Unless you’re buying, renovating, and then flicking it off quickly, appreciation of land value takes time. If you have ten years or more, maybe property is an option, and having then property for more than ten years helps to avoid the bright-line rule.

5. Do You Have Experience?

If you’re new to investing, start with options that you can understand. Don’t invest in something that you have no idea what it is or how it works just because your neighbour or mate says it’s the next “sure thing”.

6. What’s Your Risk Tolerance?

In general, people have an in-built tolerance for risk. Some are happy to play big (and maybe win big), while others would prefer slow, steady gains with less risk involved (there is no such thing as no risk).

People who choose a high risk investment while they are low risk people will not be able to sleep at night because those market fluctuations stress them out. Then, they panic-sell and lose huge amounts on their portfolios. Those who are high risk and choose a low risk investment will get bored and not stay the course.

It’s important to get it right.

A quick addendum is that those close to retirement are usually wise to choose lower-risk investments. If you don’t have five to ten years to recover from a catastrophic market crash, then opt for safety.

Speak to a Professional

If you’re not sure or you would rather get a professional to help you manage your money, then contact an investment adviser. Here at Smart Adviser, we listen to you and help you create a financial investment plan that works for you.