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3 steps to building your investment portfolio

With cash rates at an all time low and global market volatility predicted to rise, balancing risk and return in your investment portfolio may feel challenging. If you’d like to invest beyond your superannuation, start with these three tips for investors.

1. Understand your goals and timeframe

If you are just starting out on your wealth creation journey, you may be more comfortable taking on higher risk to potentially achieve stronger returns down the track. Growth assets like shares or property mixed with defensive assets like fixed income might help you achieve a better long-term result.

As you get closer to retirement, your goals may focus more on predictable income and protecting your wealth.

2. What type of investor are you?

Almost every type of investment comes with some level of risk, so it's essential to understand your attitude to investing. As a rule of thumb, the higher the risk the greater the potential returns – but risky investments rarely come with a guarantee. Your investment profile might be 'aggressive' (prepared to accept a higher risk of capital loss to achieve higher returns) or more 'conservative' (prepared to accept lower returns if it protects the value of your capital).

If you're not sure which end of the spectrum you fall, ask yourself whether you'd lose sleep over a downturn in the value of your investment.

3. Don't put all your eggs in one basket

It’s sensible to manage risk by spreading your money between different asset classes such as cash or fixed interest. This can reduce the volatility within your portfolio, and the risk of a large drop due to any market downturn.

A diversified portfolio can also provide you with different sources of income to make cash flow a little more predictable, and protect you from any unexpected tax or legislative changes that may impact a specific asset class.

As it can often take time to sell certain investments (such as property), if you need to sell quickly due to unplanned expenses or lifestyle changes you may lose capital. That’s why astute investors often keep an emergency cash fund.

Creating a balanced portfolio can be a challenge when you have a limited amount to invest. Look for investment opportunities with low minimums, such as cash deposits, to get you started – as you build your capital you’ll have more funds available to put towards larger assets with higher costs of entry.

A packaged investment product with diversification built in is a simple way to start. For example, cash or fixed income plus shares or a managed fund.

What's right for you?

Everybody's circumstances and financial goals are different, and will change over time. So an investment strategy that suits one investor won't necessarily suit another.

When deciding which assets are best for you, it's important to consider your life stage, the amount of money you have to invest, how long you plan to stay invested and what your tolerance for risk is.

It’s comforting to know that Australia has an extremely well-regulated investment market, with a wide variety of investment options to choose from.

Lower risk investments include term deposits, cash management or fixed interest accounts. Higher risk investments include Australian and international shares, and structured products – which combine different types of investments into one opportunity.

Investing any extra cash you have now can set you up for a more comfortable future. Just make sure you understand exactly what you’re investing in, and any risks involved.

Start investing

Important Information:

Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should consider if this advice is appropriate for your situation. We recommend you read the Product Disclosure Statement (PDS) or Terms and Conditions, available online or via a Citibank branch, in addition to seeking independent legal, financial and taxation advice on your personal circumstances before acting on the information contained in this material.

This material is for general information only. All opinions are subject to change without notice. This material is taken from sources which are believed to be accurate, however Citibank accepts no liability of any kind to any person who relies on the information in it. Investments are not deposits or other obligations of, guaranteed, or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risks, including the possible loss of the principal amount invested. Investments are subject to risk, including loss of income and principal. Past performance is not an indicator of future performance. Due to exchange rate fluctuations, you risk losing capital if you invest in foreign currency. Some products are not available to US persons and may not be available in all jurisdictions.

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