Key Steps for Solid Long-Term Investment

By Greg Major*, BA (AsSt) BE (Hons) MBA, GAICD FFIN FAIM, Director, Blueprint Wealth

According to the latest AMP.NATSEM Income and Wealth Report, Australians are hard working, in fact, we are working longer hours than many European countries.  But while we slave away, our money may not be working as hard.

The report, Race against time – How Australians spend their time, found that on average we are working 32.5 hours per week (full and part-time employment), compared to just 26.5 hours in the Netherlands, 29.9 hours in France and 31.6 hours in the United Kingdom.1

Once we get our hard-earned pay, what we do with it may be different in this economic climate to what we would have done in boom times.

In fact, some people who may be feeling extra cautious seek safety by putting more investments into cash.  While this might seem safe, ultimately it could result in lower returns over the long term.

For people with time on their side, taking a long-term approach would be wiser.  So what are the key steps for solid long-term investment?

1. Know your risk limits

All investment carries risk, but before you consider how to invest your money, the most important step is to work out what level of risk you are comfortable with.

It’s important that any investment strategy matches how comfortable people are with risk, because investing in a way that is not compatible with this can lead to unnecessary stress which may not be worth even the most brilliant of financial returns.

2. Beware ‘hot tips’

Many of us love to stand around the barbeque in summer and talk investment – but beware ‘hot tips’.  The danger is for people to take advice from well-meaning friends about ways to invest which may not be appropriate for them as individuals.

Sometimes the person giving the advice has a preconception that everyone is comfortable investing in high risk speculative ventures, or may assume that others can afford to invest in this way.  This can lead to losses people are not prepared for.

3.Spread the risk

It is never a good idea to carry all your investment eggs in one basket.  If the person managing your investment drops the basket you may lose everything.

The impact of market volatility on your investments can also be minimised by spreading the risk across different types of investment.

4. Reduce risks where possible

It pays to employ strategies that reduce investment risks wherever possible.  The risk of volatility for example can be reduced by employing a strategy known as dollar-cost-averaging.

Rather than waiting to have a lump sum to invest, you might reap real benefits by investing smaller, regular amounts over a longer timeframe.  Because markets move up and down, you will sometimes buy at higher prices and sometimes at lower prices. So the price you’ll pay over time will be averaged out.

There is also personal risk to consider.  What underpins all our investments is our ability to work each day to earn income.  Without our income and protection on it, we are likely to cash our investments earlier than expected so we can sustain our lifestyle in the event that we can’t work because of illness or injury.

Personal insurance reduces the possibility that we need to sell investments at the wrong time, such as when markets are down.

5. Long-term means long-term

When investing, long term is considered between five and seven years.  Having unreal expectations can lead people to sell their investments too soon instead of giving them the time they need to create value.  The longer money is retained in higher risk investments, the less risk there is of negative returns.

For example, the risk of a negative return within Australian shares over a one year period is quite high, whereas the risk of a negative return from an investment in Australian shares over seven years is likely to be less.

6. Don’t set and forget

As things rarely stay the same for long, once a long-term strategy is set in place it’s crucial that comprehensive reviews are performed at least annually.

During the review, people need to review their risk profile and their personal and financial risk mitigation strategies.  The ‘carrier’ of the risk, such as a fund manager, must also be reviewed.

If you set and forget you may not end up achieving the goals you initially established, and more than likely these goals will change over time and you should adapt your strategy to reflect this.


At Blueprint Wealth we offer financial advice that is right for you, no matter what stage of life you are at. Contact us today to set up a plan that is right for you.

1          OECD statistics for selected OECD countries 2009.

*Greg Major is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.