Avid bakers and burnt batter aficionados alike know that there are certain steps to making a great cake, but did you know you could apply some of these to investing?
Here are 5 tips from cake making that you could apply to investing.
1) The blend of ingredients makes a difference
Consider different investment types as your ingredients. You might have shares, bonds, property, even assets like gold or just cash. There are many different ways you can blend your investments and a slight change could mean the difference between the right “flavour” for you or the wrong one. For example, using a higher proportion of shares could mean a growth focused strategy – but in turn, might mean a riskier investment.
2) Quality can influence the outcome
It’s not just food that varies in quality – your investments do too. So how do you know what quality your investments are and whether it matters? Different investments are measured in different ways for quality. For example, bonds are given ratings based on how likely they are to be repaid to the investor. An AAA bond is more likely to be repaid than a CC (non-investment grade) bond and therefore be considered better quality. Shares on the other hand are analysed for things like how the company is managed, its revenue and growth prospects and even the political stability of the country it operates in.
3) Ingredients can come from anywhere in the world
If you were making a cake, you could use cocoa grown in Colombia, Ghana or the Philippines (amongst others). If you want, you can also look worldwide for your investments. You’ll just need to be aware of ways to access these and whether an investment in a particular country is a suitable option for you. Some investors use brokers to directly access investments in other countries, while others might invest in a managed fund that has a proportion of international investments. Depending on your provider, your superannuation is likely to blend investments from across the world.
4) You can change the ingredients or steps
If you developed a food allergy or intolerance, you could switch ingredients or try a different cake. You can also think this way with investing. You don’t have to stick to the same investments and blend for life, you can adjust as your life changes – or your needs change. Superannuation is a common example of how this could work. In your 20s, you might have a more growth focused strategy because you have a longer timeframe for investing and better chance to recoup losses, whereas in your 50s, you might switch to a balanced or defensive approach because your investment timeframe is shorter and you might need more protection.
5) Sometimes it helps to engage an expert
When it comes to cakes, sometimes you don’t have the time, desire or perhaps it’s just too difficult to make the particular cake you’d like. In that instance, you might hire someone to make you a special cake, buy one from a shop or still partly make it yourself with a packet mix. You could find expert help for your investments too. This might be using ready-made investments, or doing it yourself with a system that has everything in one place. It could be speaking to a financial adviser for a tailored investment portfolio to your goals and needs. The point is, you have the option to get expert help if you want or need to.
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This information is current as at 08/05/2017.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
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