Factors affecting investment decisions

RISK: Is security of your investment the major aim?

Normally, investments with high potential returns and losses are associated with high risk, for example a high risk investment is shares. Shares are thought to be high risk because of their ever-changing value.

It is then true to say that investments with potential low returns and losses are associated with relatively low risk, for example term deposits. Term deposits are low risk because they are invested securely with the bank and the Australian Government has guarenteed deposits up to $250,000.

DIVERSIFICATION: Do you need an income from your investment or Are you interested in getting capital growth rather than an income from your investment?

This will determine if you should invest cash or fixed rate savings to generate income or an investment portfolio that will ensure capital growth.

TIME FRAME: Is quick access to the funds important?

This will determine what type of investment or savings account you will take out. If you need access to your money whilst it's being invested consider taking out a GoalSaver or a Netbank saver account. GoalSaver allows one withdrawal a month, whilst the NetBank saver has unlimited withdrawls and deposits. However, if access to your money isn't an issue consider taking out a term deposit. No withdrawls are allowed but your interest return is higher.

TAXATION: Is tax effectiveness on any distributions received from your investments an important factor?

Interest earned on cash or fixed-interest deposits attract a tax liability for the investor. Dividends from shares may attract taxation, depending on the type of dividend. It would be a good idea to seek advice from a financial advisor to evaluate the tax implications on your investment.