‘Understanding the WHY is like knowing where your destination is before you start your journey. When you understand the WHY, you can then map out the best way to get there.’
Last weekend we were going on a small road trip. We were lucky that we knew where we were going, but we were not 100% sure of the best way to get there. So instead of just driving and hoping for the best, we turned to our trusted navigator app and planned how we would get there. It took two minutes, but we had a plan.
It got me to thinking that this is what most people miss when they invest. Most people I speak to that are interested in investing do not realise the importance of knowing what the end goal is.
Instead, they have a mistaken belief that investing is about trying to find the next big thing. You might be lucky and do it once, but you will not be able to do it repeatedly.
Investing is not always about trying to chase the highest returns.
Investing is simply the action of buying assets that will give you an income and/or equity that matches something you want to do in the future.
Ideally the assets you buy are diversified across different countries and industries, but that is not the topic for today.
There are hundreds of different ways to invest, and there are people that “specialise” in all of them. These people might be good at their job, but that does not mean going all in with their preferred investment approach is appropriate for you.
Regardless of where people are on their investment journey, instead of focussing on whether they should be investing in commercial property, residential property, shares, or crypto, I encourage everyone to step back and focus on what they want to do in the future. Focus on WHY they are investing.
Understanding the WHY is like knowing where your destination is before you start your journey. When you understand the WHY, you can then map out the best way to get there.
It is important to note that you can have (and most likely will have) several WHYs, which will lead you to having different investment strategies at the same time.
Here are some examples:
- You are saving and investing to build a house deposit. You are looking to start a family and really want the house in the next two years. In this situation, you are probably best not taking too big of a market risk. You do not want to do all of the hard work (i.e. save) and then when the time comes realise you cannot buy your house because the value of your investment just fell by 25%. So instead of putting all your money into shares, you might be better off having most of it in a high interest cash account.
- You are investing for a house upgrade in 4-5 years but are flexible about the timeframe. In this situation, you can afford to take more risk, as history tells us that most crashes only last for about 12 months. Note here that as you get nearer your goal, you may want to change the strategy.
- You are investing for a retirement in 15 years (think Super). There is very little value (except for having less anxiety when the market falls) in holding too much cash and/or bonds.
I specialise in helping people match their money with what they want to do in their life. We want everyone to live their ideal life. If you want to make sure your super and investments match what you want your life to look like, book a chat via the button below or contact me on 0417 034 252 or at office@constructwealth.com.au.
About the Author
Phil Harvey is an independent financial adviser. In 2017 Phil set up his company Construct Wealth to help clients best manage their finances so they focus on what is important to them. He is a founding member of the Profession of Independent Financial Advisers and a tax financial adviser, registered with the Tax Practitioners Board.
General Advice Warning
This advice contains general information. It may not be suitable to you because it does not consider your personal circumstances. Phil Harvey and Construct Wealth are authorised representatives of Independent Financial Advisers Australia (AFSL 464629)
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