Investments fall into several different categories. A chosen financial planner or adviser will recommend a strategy using appropriate investments depending on the investor’s financial needs, objectives and profile. Broadly, investments can be categorized into two types, those related to wealth creation and the other to wealth protection.
Wealth Creation
It is achieved by increasing the worth of one’s assets and protecting them against the effects of both inflation and taxation. Four investments for wealth creation include managed funds, retirement incomes, savings and term investments, and superannuation.
- Managed Funds. These accounts are entrusted and operated by professional investment managers who decide how to invest the funds in a variety of asset types including property, cash, interest-bearing securities, and international shares. Managed funds pool the money of different investors with similar goals. Managed funds provide income, capital growth, or a combination of both. Offerings include access to investment markets and levels of return that normally may be out of reach for individual investors.
- Retirement Incomes. An investor may choose to put his or her money in an allocated pension or an annuity once retirement age is reached. Each of these options provides income as well as tax advantages. Allocated pensions may also offer capital growth. An additional advantage for retirees receiving these income streams is the possible favorable treatment for social security assessment.
- Savings and Term Investments. These types of investments are regarded more as income providers rather than as growth investments, term deposits, and cash management accounts since they form part of a well-balanced financial portfolio. They are generally used for short-term monetary needs or where security of money is important.
- Superannuation. Superannuation is a retirement program in Australia that includes pensions. It can be a tax-efficient way of saving money for retirement. Other countries may have a similar program or counterpart. In it, funds are accumulated through contributions from employers (required by law), employees (and spouses, if applicable), who may be offered various tax advantages for making the investments. Superannuation investments may be preserved, which means the investor may not be able to access these funds until he or she has reached preservation age (for example, a minimum age of 55) and permanently retired, or until conditions that may apply are met.
Wealth Protection
In wealth protection, part of good planning is to take measures to protect not only an investor’s assets but also the investor himself. For example, often a person’s greatest asset is the ability to earn an income in almost all of his adult life. To protect this income and other assets, there are various types of wealth protection including life insurance, income protection, and trauma insurance.
- Income Protection. Income protection is used to safeguard assets or loan repayments in the event of illness or disability. This type of protection will help pay bills if the investor is not able to work for a period of time.
- Life Insurance. Life insurance protects an insured person and his assets by providing his family with financial security in case of the insured’s death.
- Trauma Insurance. Trauma insurance offers protection by providing a lump-sum payment in the event the insured suffers from a range of medical conditions, such as heart attack, cancer, or stroke.
Financial planners/advisers can provide advice on a range of investment, insurance and other investment products.
Readers who are interested may want read about Investing Money - Risk Versus Return on Investment.
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