A little knowledge can go a long way to help you when deciding on which investment may suit your tolerance to risk, investment goals, circumstances and timeframe. That’s why it is important to have some idea of where your money is going and how your investment ‘mix’ is made up.

The most common asset classes represent different types of investment – cash, fixed interest, property and shares. Each asset class has a different level of risk and return, which means they can perform differently over time.

When choosing an asset class for your investment, it’s important to understand how they work, and to be clear about investment timeframes so you’re not setting yourself false expectations of how your money should be tracking over time.

When you focus on structuring your investment portfolio, remember that investments that have provided higher returns over the longer term may produce a wider range of returns over the short term. You should keep this in mind as this may mean that these investments may not help you to meet your short term investment goals. Now let’s look at the different types and the risk level involved.

1. Cash and fixed interest

In a nutshell: defensive assets, such as cash or fixed interest are generally aimed at providing stable more consistent returns.

• Cash

Cash generally refers to bank bills or other similar securities, which generally have a short term investment timeframe and provide more stable returns and a narrower range of returns over the shorter term than some other investments such as shares.

Risk level: Low risk
Minimum suggested timeframe: No minimum

• Fixed interest

These are usually securities such as government and corporate bonds and generally operate in a similar fashion to loans. You can get a regular interest payment from a bond for an agreed period of time and the value can go up and down, depending on changing interest rate levels. You get your initial outlay of cash back when the bond matures. Bonds have historically offered returns that are generally more consistent, but lower, than shares. They still contain some level of risk higher than a cash investment.

Risk level: Low–medium risk
Timeframe: Minimum suggested 3 years

2. Property securities, Australian and international shares

In a nutshell: growth assets focused on capital growth and income.

• Property
  

Property can generally be bought directly or you can buy it indirectly via property securities. Property securities are usually listed on a stock exchange and are traded in a similar way to shares. Depending on the specific security, each property security can represent an investment in a real property in various sectors including retail, industrial and office.

Risk level: Medium–high risk
Timeframe: Minimum suggested 5 years

• Shares

You can buy shares in companies locally and/or internationally, with your money buying you a stake in the company that can be traded on a stock exchange. This can be done directly, or through a managed fund, which will pool your money with other investors to buy shares in various companies.

The value of shares tends to fluctuate and shares are considered to be more risky than other asset classes. However, over the longer term shares have historically tended to outperform other asset classes.

Risk: High risk
Timeframe: Minimum suggested investment 7 years for Australian shares and 7 years for international shares.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.