July 1999 Volume 80 Number 7 "serving the protectors"
Police Credit Union
Finance

Developing a balanced Investment Portfolio

Financial security is peace of mind, and there are many forms of investment in which to place your money. We’re all familiar with the phrase: “Don’t put all your eggs in one basket”, and this certainly should be kept in mind when contemplating investments.

One type of investment to consider is a Fixed Term Deposit. Generally requiring a minimum deposit of $1000, a term deposit offers a fixed rate of interest for a fixed term, with interest paid at maturity. Alternatively, interest can be reinvested with the principal amount for a further fixed term.

Some types of fixed-term deposits are specifically designed for those people who require their interest dividends paid more frequently, for example monthly, quarterly, or half-yearly. This type of interest payment can be utilised for living expenses such as quarterly water rates.

A Fixed Term Deposit is also ideal for a parent wishing to put aside some funds for their children’s future. For example, $1,000 placed on a Fixed Term Deposit at a rate of 3% pa reinvested each year - and assuming a similar rate throughout - will have grown after 16 years to the sum of $1,652.76 without any further outlay. Many financial institutions will allow you to add to the principal sum invested at any time without penalty, although there may be a minimum amount required.

There are other forms of investment also worthy of consideration such as the share market. Shares do not give you the security of a fixed-term deposit, but it has been proven that potentially over the long term they can offer much higher returns. Remember though, if share prices plummet, you may not only have lost any profit, but also a percentage of your original investment.

Similarly, over a longer term, investment in real estate may also provide capital growth and be of benefit in the form of negative gearing. However, as with shares, this form of investment is not without risk. For example, if interest rates rise, you could find that the loan repayments are well in excess of the rent you are receiving. Further, if housing prices remain low, you will not experience any capital growth in your investment.

Most important, when establishing your investment portfolio, is prioritizing your goals and determining which type of investment is best for you. Make sure you are not swayed by the press or any get-rich-quick schemes. For example, if you are a young homebuyer with a high mortgage, making additional payments to your mortgage to reduce the interest you pay and the term of the loan would be preferable to investing in shares. Similarly, if you have reached the stage in your life when your mortgage is paid off, it may be beneficial to provide for your future by investing surplus money in voluntary superannuation payments.

Remember that each individual circumstance is different, and with careful planning and consideration, we can all have financial security throughout our working lives - and retirement.

If you would like to enquire about a Fixed Term Deposit, call the Police Credit Union on 131844.

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