The Impact of Knowledge

Previously, we’ve discussed the “inputs” that will be required for an Investment Strategy starting off by talking about the different ways that money and time will be required to implement an investment strategy and their impacts on the outcome of that strategy.

Another key input that will be required of any prospective investor is knowledge.  The first step in any Investment Strategy will be to clarify the desired outcome based on your short, medium and long term personal and financial goals, as this knowledge will be fundamental to planning, implementing and managing that strategy.  This may sound simple, but studies show that very few people have a clear understanding of the level of accumulated wealth they will require to fund their desired lifestyle once they stop working for a living.

Without knowing the level of wealth that will be needed, it is impossible to know whether the investment strategy is the right one to deliver the desired outcome.

How do you kick a goal, if you don’t know where the goalposts are?  So this knowledge is critical to development and implementation of a plan to build future wealth.

In addition, every form of investment will require that you have (or get) some level of knowledge of the proposed investment approach in order to evaluate how well it meets your investment objectives.  Key parameters that will need to be understood and evaluated are the potential capital growth, yield and risk of each investment alternative being considered.

Evaluating a simple investment such as a Term Deposit with a Bank will typically require only a small amount of information, most of which should be available directly from the Bank or from a quick Internet search.  Things like interest rate, investment term, and whether the account can be set up online or requires you to turn up at a Bank Branch in person, can generally be determined quite quickly.  Comparing different products and choosing between them may require a bit more research to increase your knowledge to the level required to make an informed decision.

Other investments will usually require you to have more knowledge of the proposed investment in order to be able to decide whether it is a good match to your investment strategy.  If you are considering investing in a Share Portfolio, you would typically need to decide what type of broker to use, and then select one that is suited to your intended buying and selling approach.  You would also need a minimum level of knowledge to be able to consider and decide which Shares to buy ( and how many ) to obtain a portfolio designed to deliver your desired combination of capital growth, yield and risk.

How about Investing in Property?

Including a Property as part of investment strategy will require an understanding of the steps and costs involved in buying a property, such as knowing about different types of property and different locations and how these choices will influence the investment outcome, as well as gaining an understanding of the actual purchase and settlement process.  You will also generally require knowledge of processes involved in borrowing money in order to fund the purchase, and how to determine which loan product and account structure will be best suited to your desired outcome.

And finally, you will need a way to evaluate the success of your selected investments throughout the course of the plan.  Knowing what the various investments were expected to achieve will enable you to determine whether they are on track, whether they are under-performing, in which case some corrective action might be required, or whether they are outperforming expectations, which may open up opportunities for a better than expected outcome.

So there is a certain level of knowledge that will be required to enable you to build a wealthier tomorrow.  Clarifying what goals you want to achieve is a fundamental first step, and then understanding what knowledge will be required to evaluate, plan, implement and manage your Investment Strategy will be critical to achieving the desired outcome.

Empower Wealth’s Personal Wealth Management Program (also known as our Property Portfolio Plan) includes a sophisticated tools which assist with gaining an understanding of your current financial position and determining what level of accumulated wealth will be required to deliver your desired lifestyle once you stop working for a living.  These tools will also allow you to see the effect of investment strategy decisions by modelling the effect of all the factors which influence the long term financial outcome of an investment, to give you the numbers you need to make an informed decision about your financial future.

If you would be interested in seeing how these tools and techniques could be applied to your own personal financial situation, please come and see us for a free one hour consultation.