Investment strategies

Creating a personalised strategy is an important first step towards investing successfully

Developing your investment strategy

Before investing, take some time to think about what you want your share investments to achieve for you and how it fits in with your whole investment portfolio, not just shares. Also consider the circumstances in which you might need to change your strategy or sell your shares.

Why are you investing?
Do you want a return in the form of income or capital growth, or a combination of both?
Are you prepared to risk some of your capital for the opportunity to make higher returns?
How will this investment fit in with your broader investment portfolio and your investment goals and strategy?

Investment strategies commonly focus on growth, income or a combination of the two.

Growth: A growth strategy aims to achieve share price growth at a rate higher than inflation. It favours shares that are likely to see strong capital growth rather than paying dividends. A growth strategy might suit you if you have a long term investment horizon and are looking to build up a substantial asset base. Shares with higher growth potential are also likely to have a greater risk profile.
Income: An income strategy aims to achieve high dividend payments. Using franking credits can also increase the value of dividends. An income strategy might suit you if you are looking to supplement or replace an income – for example, if you are in retirement.

Some dividends are issued as fully or partly franked. This means they carry imputation or ‘franking’ credits. These credits can be used by some shareholders to achieve a tax offset or a reduction in the amount of tax to be paid. If your marginal rate of tax is lower than the company tax rate, you may be able to use the excess franking rebate to reduce the tax payable on other sources of income. The tax implications of investing in shares may vary depending on your personal circumstances, and you should seek your own professional advice.

Share analysis

There are many ways to analyse a company's share performance, but most fall into one of the following two categories.

Fundamental analysis looks at the business fundamentals, future outlook and financial indicators of the company, such as its balance sheet, income statement and financial ratios.
Technical analysis looks at past price movements of an individual share or of the market as a whole. Charts are the key tool used in technical analysis.

Many investors combine elements of both analysis techniques to make their buy and sell decisions.

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