Compounding is when you reinvest the interest you earn on an investment. Over time, this can be an effective means of accelerating the growth of your money. If you continue to reinvest your interest over a few years, you will be earning interest on your interest on your interest. The more time you give your investments, the more you are able to accelerate the income potential of your original investment, which takes the pressure off you.

How to make compound interest work for you

1. Save as much as you can for as long as you can

2. Stay invested

3. Don't spend the interest! Compound interest can be earned on both the principal and interest

The basic principles of compound interest

If you were a regular saver who was able to put away $100 a month over a long period of time, how well would you fare? Like a lot of things in life, that would depend on a number of factors, but the following basic principles hold true:

Start investing early

The more time you have, the greater the effect of compound interest. If you were to invest $200 a month from 20 to 29 years of age and then left your investment to grow, you would probably have more money at 60 years of age than someone who chose to invest that same amount per month from 30 to 59 years of age.

What difference does 1% make?

The difference between investing at 7% and 8% over time is huge, so it's important to get the best rate possible!

Growing your savings

If you saved $100 a month for 40 years and your investments compound at 6% a year, you would not have $51,360 as you might expect ($100 x 12 months x 40 years x 106%), but actually $248,552 due to compounding!

When you invest, keep in mind that compounding amplifies the growth of your working money. Just like investing maximises your earning potential, compounding maximises the earning potential of your investments. However, remember that for time and reinvesting make compounding work, so you must keep your hands off the principal and earned interest for this investment strategy to work properly.

For more information about compound interest and other types of investments available, speak to one of the financial planners at Intellichoice today on 1300 55 10 45.

Managed investments or managed funds is an investment tool that pools the funds of individual investors into a single fund and investment decisions are then made by an experienced fund manager on behalf of the individual investors. Depending on the particular managed investment (often called a managed fund), it might invest in shares, property, fixed interest or cash, or a combination of all these assets.

When you invest in a managed investment, you are allocated a number of units based on how much you invest and the current price of each unit. For example, if you invest $10,000 and the unit price at the time is $1, you would own 10,000 units. If the value of the managed fund rises to $2, then you investment will be worth $20,000 ($2 x 10,000 units). If the unit price drops to 90 cents, then your investment would be worth $9,000 (90 cents x 10,000 units).

Managed investments have become popular with investors due to the following reasons:

1. Expert management

Investment managers employ teams of investment analysts and portfolio managers to constantly research investment markets and determine which assets should have the best performance. They will then buy those assets on your behalf and monitor them closely to ensure they perform as expected.

Investment managers also conduct regular reviews to determine which assets should be sold and replaced with assets with more potential.

2. Broad diversification

Diversification minimises the risk of losing capital and the risk of fluctuating investment returns. It is another way of saying 'don't put all your eggs in one basket.'

The problem for most people is that they don't have enough money to spread their investments enough to minimise these risks. That is where managed investments come in. For as little as $2,000 (or even less in some cases), you can access a diversified portfolio which contains hundreds of well-researched investments.

Some managed investments are asset-specific, which means that they only invest in one asset type - shares, property, cash or fixed interest. However, in each case, the managed investment would still diversify. For example, a managed investment specialising in shares will typically invest in a range of shares across many different sectors such as banks, retail, building materials, media and telecommunications.

3. Convenience

Using managed investments will save you time and effort as the investment manager does all the research, buying and selling on your behalf. All your administration issues are taken care of as well - from dealing with brokers and sending you regular reports to providing you with information relevant to your tax return.

4. Performance

The constant research conducted by managed funds, as well as their broad diversification, means that they generally outperform do-it-yourself investors who lack access to expert research and diversification.

The benefits of managed investments include:

• diversification - the opportunity to gain access to a wide range of assets with a relatively small amount of money

• greater buying power - access to assets which would normally be beyond your reach, such as an overseas company or a large shopping centre

• increased liquidity - the flexibility to sell your investment units at any time

• professional management - having full time financial experts looking after your investments. This has the advantage of potentially less risk and greater returns

Which type of managed investment should you invest in?

There are a number of different types of managed investments including:

Cash: invests in highly secure bank and government short-term securities and wholesale money markets. You will receive interest on a regular basis

Fixed interest: invests primarily in bonds issued by governments and corporations. The investment will pay you interest and there is also the possibility of a small amount of capital growth and loss

Property: typically invests in commercial, retail and industrial properties. The value of these managed investments will fluctuate according to market movements, but over time should deliver an increase in value greater than inflation. Income is generally paid on a regular basis

Shares: focuses on shares in Australia and/or internationally. These investments will generally deliver the highest return of all managed funds over the medium to long term, however they also exhibit the highest fluctuations in values in the short term. Income which is paid to you will be tax-effective if it is from Australian shares

Multi-sector: invests in a broad range of asset classes. Typically, some of the money is invested in shares and property, with the balance in cash and fixed interest

Please note that management fees vary from fund to fund and you should compare fund managers' fee structures before deciding where to invest. For more information on managed investments or for professional financial advice in determining the appropriate mix of growth and defensive assets based on your current circumstances, time frame and financial goals, speak to one of the financial planners on 1300 55 10 45.

Purchasing shares gives you part ownership in a company and the right to receive a portion of the profits, commonly referred to as dividends. An added bonus is that dividends can provide you with substantial tax benefits, because they are usually franked – either fully or partially. This means the company has already paid tax on this money – usually to the corporate tax rate of 36%. In some cases, it may be even higher.

Changes in share prices reflect the market value of the company. Fluctuations in the market value of shares will be reflected in the underlying value of your original investment.

Income is paid to you in the form of dividends, representing your share of the company's profits.

An added bonus is that dividends can provide you with substantial tax benefits, because they are usually franked - either fully or partially. This means the company has already paid tax on this money - usually to the corporate tax rate of 36 per cent. In some cases, it may be even higher.

The share market is characterised by volatility, with the value of share prices often fluctuating on a daily basis. However, over time, the impact of the daily movements diminishes.  Although past performance is no indication of future performance, the Australian share market has outperformed most other types of investments in the last 10 years. In the last 5 years alone, the ASX 200 grew by over 150% backed by strong resource and financial services sectors.

The share market can be a high-risk prospect if you speculate. Speculators 'gamble' by attempting to profit from short-term fluctuations in share prices. The risk is substantial because it is extremely difficult to predict the market's movements over the short term.

However, shares can be relatively low risk if you take a longer-term view and invest in well-researched companies that are fundamentally sound. If you are not comfortable entering in to the share market directly, but want to invest in this asset class, a managed investment (where your funds are pooled with those with other investors and invested by specialists) may be a good investment option to start with.

Below are 8 reasons why you should invest in shares

• Capital growth: Over the long term, investing in shares can product significant capital gains through increases in share prices.

• Dividends: Companies pay most of their post-tax profits to their shareholders in the form of dividends

• Ease of buying and selling: Compared to other investments, shares are very portable and can be bought and sold quickly

• Diversifies your investment portfolio: Diversify your investment portfolio by having part of your money in the share market. There are over 1,700 companies listed on the ASX covering a wide range of industries such as materials, financial services, retail, health care and telecommunications. Investing across different sectors can help you reduce your risk. You can buy shares directly or through managed investments or with your superannuation

• Shareholder discounts and entitlements: Some companies, for example, retail, hospitality or entertainment, offer generous discounts to shareholders when they buy goods and services from the companies or their subsidiaries. There are also a number of tax advantages when you invest in shares.

• Control the size of your investment: As the investor, you get the control the size of your stock purchases. You can start your share portfolio from as little as $500.

• Liquidity: Shares can be bought and sold quickly and investments can be turned into cash in about 3 days following the trade day

• Cost effective: There are many online brokers which make trading in the stock market very cost effective.

As with any other investments, we recommend you seek professional financial advice first to ensure this is the best option for you. If you are thinking of investing in shares, speak to one of the financial planners at Intellichoice on 1300 55 10 45. We have access to a range of investment options and will be able to recommend an investment strategy that suits your needs and meets your medium and long-term goals.

Investments can be divided into classes, according to their risk and return characteristics. Growth assets include shares and property which are expected to generate higher capital growth over the long term as compared to defensive assets (cash and fixed interest). They may also provide some income in the form of dividends from shares and rent from property, but typically, this is a smaller proportion of the total return over the long term.

Over the long term, growth investments have generally provided a higher return than defensive assets, but with greater volatility of returns.

The largest investment and asset that most people make is usually their own home. However, investing in property is not confined to owning your home or even a rental property. It can also include:

• Industrial
• Commercial
• Residential
• Retail
• Rural
• Tourism

You can choose to either purchase an investment property directly, or you can invest in a property trust. Investing in a property trust generally gives you access to a range of property classes (as listed above) ranging from large shopping centres to residential flats.

Property is generally viewed as a secure long-term investment, often providing better long-term returns than cash and fixed interest. For more details on property, please visit the Intellichoice Financial Services website or call 1300 55 10 45 to speak to one of our mortgage brokers. Intellichoice Financial Services has a wide range of real estate all around Australia, including Brisbane, Sunshine Coast, Gold Coast, Melbourne, Sydney, Perth and Northern QLD.