Australian investors are a savvy bunch, ever keen to educate themselves on the optimal ways to grow their wealth.
But there are three common mistakes that people may continue to make on their quest for more financial security. What are they and how can we avoid making them ourselves?
1. Not understanding ‘good’ and ‘bad’ debt
Some people are afraid of debt of any kind, believing it will hamstring their efforts to get ahead financially. However debt, can be used to help investors fast track their wealth creation strategy.
Good debt refers to any loan that moves the needle forward on your overall wealth. When you borrow to purchase an investment or an asset that appreciates in value, you are hoping to build wealth over the long-term.
Bad debt, on the other hand, can drain your wealth and potentially leave you worse off than you started.
For example, when debt is used to purchase a car, which may decrease in value every day or worse still, an unsecured debt such as a credit card.
2. Missing an opportunity to leverage extra payments and offsets
Some mortgage holders don’t realise the power they hold themselves when it comes to paying off their home loan sooner, boosting their financial position along the way.
As a mortgagee, it could be good idea to seek financial advice or educate yourself on the options available in terms of mortgage offset accounts and extra repayments.
3. Putting all your eggs in one basket
There are countless ways to invest your hard earned money: you can buy shares, invest in property directly or through a managed fund, set up a SMSF, or leverage your money as a developer.
One of the biggest an investor can make is putting all of your eggs in one basket, relying on that specific strategy alone to build their wealth.
When you adopt a long-term view, the majority of investment classes grow but throughout that period, there are peaks and troughs, where the value of each investment can boom or fall in significant amounts according to market conditions of the day.
Therefore, astute investors aim to spread their risk by diversifying their investments – so that if one falters, another hopefully prospers, minimising the impact on their overall wealth.
For more on building your wealth, check out why it’s important to understand investment risk or tune into a recent Nestegg.com.au podcast where our Managing Director, Philip Ryan chats about managing risk within your investment portfolio.
The material on this website is intended only to provide a summary and general overview on matters of interest. Trilogy is only licensed to provide general financial product advice on its own products and does not consider your objectives, financial situation or needs when providing any information or advice. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.