Welcome to the next video in our series about the 6 Building Blocks to Financial Success. We’ve now taken you through how you can create a surplus income, how you can tap into some of that equity that you may have or use some savings, to really invest wisely and tax effectively. And hopefully, now, you’re able to be on a good path to build your wealth.
But, there’s a lot of things that do come along the way, and risks that are associated with these investment strategies, and just in life in general, that we want to take into account. Some of those things are, we want to make sure that you’re diversified. We want to invest in a number of assets. Have your eggs essentially, spread over a number of baskets, so that you’re not just solely invested in one property or one share in particular, and your fortune is literally just dependent the success of that property, or that share, or that business.
Similarly, we want to make sure that you’re investing in good quality assets. There’s no point in having 10 investment properties all necessarily, let’s say, worth $150,000 each. Because the growth potential of those properties probably isn’t that great. That’s why they’re still worth $150,000. But we might decide that having three properties of $500,000 is better or you might decide that having two properties of $500,000, and having a half million dollar share portfolio, or thereabouts, is of more benefit as well to you.
We want to make sure that we are looking at your portfolio, and your investment portfolio, from a risk-management point of view. Also, if you have some debts associated with what you’re doing, because you are leveraging up into properties, we want to make sure that you have some insurance, some personal insurance place, particularly things around death benefits. If there’s any life insurance or TPD, which protects you and your portfolio and your wealth strategy just in case something happens to you or your partner. Also, income protection if for whatever reason you’re unable to work there an income protection policy that’s still paying you a percentage of your income, that could help you make your repayments.
Some of the risks of also investing in these strategies is that you need to be able to ride out good times and bad times. Because there will be some bad times in what you are doing. Like I say, property doesn’t always go up. There will be times where you won’t have a tenant, as well for instance. So we want to make sure that if you don’t have a tenant, you have a contingency fund put in place. It’s money that’s set aside for you so that if you need to be able to tap into it because you don’t have a tenant in your property, that money is sitting there and you’re not having sleepless nights worrying about it.
Also, if you’re looking at investing in a share portfolio, and the stock market falls or that some of those shares are declining, we want to make sure that if we still believe in the long-term fundamentals of that share, or the stock market in general, that you’re able to ride it out. That you don’t have to sell at a particular time that’s not a great time to sell just because you’re having cash-flow problems, for instance. So we want to make sure that there’s plenty of funds put aside to allow for some of these things that come up.
The other thing, properties around maintenance. Quite often you buy property, and there’s some maintenance issues that initially come up. And it might cost you a few thousand dollars. We want to make sure there’s that money aside, ready to go.
Focusing on good quality assets. Diversify across a number of ways. Putting a number of insurances in place, whether it’s personal insurance or landlord insurance. We protect our cars and everything else, so we should definitely be protecting our investment properties and our income. And having those personal insurances as well, around trauma, TPD, and life insurance so that we’re protecting our family.
So having all these risk-management tools in place really provides that safety net under your wealth. It’s great if we can keep increasing our wealth, and nothing bad happens. But, you’ve got to manage those risks to really provide that safety net to your wealth.
In the next video, we’ll talk about planning for retirement. So hopefully what we’re able to do is build our wealth, and protect our wealth over a long period of time. And now we’re able to transition from a period where we’re building wealth, and we’re having to work in our job or work for someone else, and we’re able to transition to a period where we can start drawing down that income. So, we look forward to seeing you in the next video.
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