Investing can be a powerful tool for building wealth and securing your financial future, but before diving in, it's essential to lay a solid foundation. Here are key steps you should consider before making your first investment.

1. Understand your financial situation

Before you start investing, take a close look at your financial health:

  • Pay off high-interest debt: High-interest debts, like credit card balances, can significantly hinder your financial progress. Focus on paying these off first to free up more money for investing.
  • Start building your emergency fund: Make sure you have savings set aside for emergencies. This safety net gives you peace of mind, so you can invest without worrying about unexpected expenses.

2.  Educate yourself

Before investing, it's important to have a basic understanding of how different investments work. Learn about:

  • Managed Funds: Professionally managed portfolios that pool money from multiple investors to invest in a variety of assets.
  • Exchange Traded Funds (ETFs): Pooled investment vehicles offering diversification.
  • Shares: Equity investments offering ownership in companies.
  • Real Estate: Property investments that can provide rental income and capital appreciation.

3. Define your investment goals

Understanding why you're investing and what you hope to achieve is crucial. Your goals along with the timeframe you intend to invest, and your risk tolerance will shape your investment strategy. Generally lower risk investments have lower returns with a shorter investment timeframe as they are more stable and less likely to fall in value during that timeframe. Whereas higher risk investments have higher expected returns but the investment timeframe is generally longer in order to ride out any short term falls in value. 

  • Short-term goals (less than 5 years): Lower risk investments such as high-yield savings accounts or bonds may be suitable.
  • Medium-term goals (5-10 years): Medium risk investments such as a balanced mix of shares and bonds may be suitable.
  • Long-term goals (10+ years): Higher risk investments primarily in shares may be suitable.

4. Assess your risk tolerance and investment timeframes

Investing involves risk, and understanding your risk tolerance and investment timeframe helps in selecting the right investments. Factors influencing your risk tolerance and investment timeframe include your age, financial goals, and comfort level with market fluctuations. Typically, younger investors can afford to take more risks with longer investment timeframes, while those nearing retirement might prefer more conservative investments with shorter investment timeframes. Always read the Product Disclosure Statement to understand the specific risks and suggested investment timeframe before investing.

5. Create a budget and consider automating

Having a budget helps you identify how much you can afford to invest regularly. Automating your savings and investments ensures consistency. You can set up automatic transfers from your bank account to your investment accounts and savings accounts, ensuring you regularly contribute without having to remember each month.

6. Diversify your portfolio

Diversification helps reduce risk by spreading investments across various asset classes. This means not putting all your money into one type of investment or sector. A well-diversified portfolio can better withstand market volatility and provide more stable returns over time.

By following these steps, you'll be better prepared to start your investing journey. Remember, successful investing requires a solid financial foundation, clear goals, and ongoing education. With the right preparation, you can make informed decisions to help build a secure financial future.


To learn more about investing, go to Investing hub in the CommBank app.

This content is brought to you by Friends That Invest.