Becoming Financially Literate

Many Australians delay taking control of their finances because they don’t have the time, they find it too daunting or they may just not know where to start. The reality is though the sooner you take charge the sooner you can start working towards achieving better results, especially in the long term. Part 4 of CPA Australia's 30 Ways to Build Your Wealth series explores some of the important financial concepts.

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Summary

1. Value of compounding

Compounding means earning interest on interest, and is a more effective means to grow money than simple interest.

2. Understand the advice you are receiving

A financial adviser has responsibilities to you as the client. But as the client, you should take some steps to increase your financial knowledge so you understand the advice you are being given.

3. How to select the right investments

Selecting the right investment is not as simple as choosing the one that has performed the best in the past. Just because it has performed well in the past, does not mean it will in the future.

4. Dollar cost averaging

Dollar cost averaging is about investing money over a period of time, rather than in a lump sum, to avoid any market timing risks.

5. The importance of investment diversification

Diversification means placing money into a variety of different types of investments so that you spread your risks, rather than putting ‘all your eggs in one basket’.

6. Focus on advice, not products

Good financial planning is not about getting the right product or the cheapest product.

7. Understanding fees & charges

Like anything in life, you get what you pay for - so the cheapest fee is not always the best.