Maximise your investments

There are many strategies you can use to build wealth and ensure you are on track to achieve your goals. Here are four proven strategies to consider for boosting your investment balance over time.

Strategy 1: Start a regular investment plan

It sounds obvious, but one of the easiest ways to boost your investment balance is to keep adding to it on a regular basis. This doesn't mean you need a lot of cash. The key to successful saving isn't having lots of money, it's consistency and discipline. For a s little as $100 a month, you can start a regular investment plan into a managed fund or super.

Adopting a consistent savings plan is a good way to build wealth. Simply prepare a budget to work out how much you can save each month, then put your plan into action. See Getting started for more details and a handy budget planner.

Strategy 2: Start now and let compounding interest do the work

Don't put off saving until you think the time is right - it may never happen! You don't need much to get started and it's far better to start now, even with a small amount. By starting to save early you can harness the power of compounding interest, which simply means earning interest on your interest. The longer you're invested, the bigger the effect. Combined with the power of making regular investments (strategy 1), it's a great way to boost your savings.

Here's an example of what could be achieved by starting now rather than later:

• Karen invested an initial $1,000 and made regular savings of $200 a month, earning 6% p.a. At the end of six years, she had $18,714.
• Bob let three years pass before he started, also adding $200 a month to his initial $1,000. At the end of the six year period, he had saved $9,299. Of course, by not starting until three years later he had deposited $7,200 less than Karen, but even allowing for that, waiting three years cost Bob $2,215 in lost interest.

(These calculations do not take into account tax, fees and inflation.)

Strategy 3: For medium and long term goals, use growth investments

It is a common mistake to assume that the best way to protect assets is to invest conservatively. Ideally, an investment portfolio should provide the right balance of investments for growth, as well as income.

As the table shows, inflation can dramatically erode the value of your savings over time. Even a low 3% p.a. inflation rate will cut the value of a dollar in half over 25 years. This is why it's important to consider investing your medium to long term savings so as to provide growth in the value of your capital (this is especially important for your retirement savings).

Inflation and the purchasing power of one dollar

	Average annual inflation rate
Years	3%	4%	5%
0	$1.00	$1.00	$1.00
5	$0.86	$0.82	$0.78
15	$0.64	$0.55	$0.48
25	$0.48	$0.38	$0.30

*This example is for illustrative purposes only.

Which investments provide capital growth?

Having a proportion of your money invested in property, Australian shares and international shares offers you the opportunity to increase the value of your capital and maximise investment returns over the medium to long term. While these types of investments involve more risk in the short term, this risk could be effectively reduced by investing for an appropriate timeframe and by spreading your money across different types of growth investments (a strategy known as diversification).

Learn more about growth investments.
Learn more about the relationship between risk and return.

What to expect from growth investments

Growth investments have historically provided better returns than cash or fixed interest over the longer term. However, it is true that they can fluctuate in value quite significantly from time to time. This is why the recommended timeframe for growth investments is longer than for more conservative investments.

This chart shows how $100,000 invested for 20 years can increase in value by around 50% more just by earning an extra 2% a year. So, including a proportion of growth investments in your portfolio of investments can help dramatically boost your investment balance over time, making it easier to achieve your financial goals.

Source: Colonial First State Investments. This chart is for illustrative purposes only and does not represent actual returns for any Colonial First State funds. It compares assumed returns of 6% p.a. and 8% p.a. (after fees and taxes) over 20 years on a starting balance of $100,000. (Returns are compounded annually). Of course, actual returns over 20 years will show a lot more ups and downs, rather than the smooth arc in the chart. However it's important to remember that with long-term investing the overall trend is what's important.

Strategy 4: Borrowing money to invest

Borrowing money to invest (also called gearing) enables you to boost your investment-earning power by increasing the amount of funds you have available to invest. While investing with someone else's money sounds like a great strategy (and it can be), be aware that borrowing money to invest also creates a higher level of risk and is not suitable for everyone.

The main benefit of this strategy is that the amount you have available to invest is increased by the amount you have borrowed - so you earn investment returns on a larger amount. Depending on your circumstances, there may also be tax advantages associated with this type of investment.

The main downside is that potential losses are larger. If your investments perform poorly, you may be left paying off a loan that is larger than the value of your investment.

Borrowing to invest is a sophisticated strategy and it is not suitable for everyone. We strongly recommend you consult a financial planner before going ahead with this strategy.

Borrowing to invest
Benefits	Risks
If your investment increases in value, this strategy will magnify your gains.	If your investment goes down in value, this strategy will magnify your losses.
Increases the amount you have to invest.	In the worst case, you might lose your total investment and still have the loan which must be paid off.
Potential tax benefits – the costs of investing are generally tax deductible.	There may be interest penalties if you repay the loan sooner than agreed.
You can achieve higher returns (after costs) than you could without borrowing.	Returns must be higher than the interest costs for the strategy to be of benefit.

Seek advice on which strategies suit you

Whether you're an expert or novice investor, good advice is important. Commonwealth Financial Planners specialise in helping you make the right investment decisions. A Commonwealth Financial Planner will work with you to identify which strategies best suit your individual circumstances, and help you achieve your financial goals.

To find out more about how a Commonwealth Financial Planner may be able to help you, or to make an obligation-free appointment with a Commonwealth Financial Planner call 1800 241 996 or email us.

Important information

• This is not advice, this provides general information only and does not take into account your individual financial circumstances or investment objectives. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment. Investment products are subject to investment risk including the loss of income and capital invested. Colonial First State Managed Investment Funds, FirstChoice Investments and FirstChoice Wholesale Investments are issued by Colonial First State Investments Limited ABN 98 002 348 352 AFSL 232468. Product Disclosure Statements (PDSs) describing the products are available by contacting Investor Services on 13 13 36. You should consider the relevant PDS before making a decision about the product. The responsible entity, Colonial First State Investments Limited receives fees.
• Commonwealth Financial Planners are representatives of Commonwealth Financial Planning Limited ABN 65 003 900 169 AFSL 231139. Commonwealth Financial Planning Limited is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.