Australia is a country of investors, with close to 9 million Australians having investments outside of their retirement savings and primary home. However, there are a confusing number of investing possibilities awaiting people who want to start a savings plan and almost as many organisations and sellers who promote investments in various ways. Good thing, putting your money to work is not as difficult as it may seem.
“Investing, when done wisely, is the best method to increase your wealth, and most forms of investments are available to almost anybody, regardless of age, profession, or occupation. However, these considerations depend on which assets are ideal for you,” says investor and small business lender Shane Perry of Max Funding.
With that in mind, here’s a quick run-through of why you should invest and the ten best investments for any age or income.
Why Invest?
Letting money work for you is a wise move. Investing can supplement your income, help you save for retirement, and even help you pay debt. Above all, investment builds wealth by helping you achieve your financial objectives and growing your buying power over time.
There are numerous possibilities for saving and investing money, from low-risk investments like certificates of deposit (CDs) and money market accounts to high-risk investments like corporate bonds. Take a look at our selection of the ten best investments to help you build your money over time.
1. Saving For Retirement
Time and compound interest are your most valuable financial assets if you’re young. Essentially, growth must be your primary investing goal for long-term investments at this stage in your life.
Investors in their twenties would have at least forty years to accumulate retirement funds. This implies that you should think about investing as much of your money as possible in securities such as typical stocks and mutual funds. It’s crucial to grow the buying power of your retirement funds since you’ll need every cent you have after you’ve retired.
2. High-Yield Savings Accounts
Savings and cash management accounts provide better rates of return than traditional bank savings or checking accounts. Cash management accounts function similarly to a savings-checking account hybrid: Their interest rates may be on par with savings accounts, but they’re usually provided by brokerage companies and may include checks or debit cards.
3. Fixed Interest Or Fixed-Income Investments
Governments and corporations usually offer fixed interest investments in Australia and worldwide. When you invest in a fixed interest investment (also referred to as bonds), you may expect to receive regular interest payments for a specific time (typically, five years). Hence, if you’re looking to diversify your investment portfolio, you can consider using these assets since they’re less risky than other investments.
4. Shares
When you acquire shares (commonly defined as equities or stocks) in an Australian or multinational company, you purchase a piece of the company and become a shareholder. There are two common ways to make (or lose) money from shares: 1) the movement in share prices, and 2) dividends received.
With regards to the price, if the company’s shares appreciate in value, so will your investment, and you may receive a percentage of the company’s profits based on dividends. Nevertheless, if the share price decreases, so will the value of the investment. Thus, if you manage your stock portfolio, you should know when to buy and sell shares.
Dividends are simply a way of receiving a money (or cash equivalents) so it is considered a source of income. Companies pay out dividends when they have excess cash that they do not need. The best way to think about this is that these are profits that are distributed to shareholders. Australian companies pay out dividends on a system known as ‘franking’. It has nothing to do with a Frank, but relates to the way they are taxed. For more information on this taxation method, check out the article on franking credits explained with Halo Technologies.
5. Real Estate Investment Trusts (REITS)
A REIT is a property fund that is published on a public exchange where investors can buy real estate properties. Once you’ve invested, your investment is pooled and committed to various property assets, including commercial, industrial, retail, and different property sectors.
REITs can give investors more diverse— industrial and commercial property – and possibly more cost-effective property market exposure than owning a single property.
6. Gold
Gold has become a commodity that may be purchased or sold at a defined market value as a precious metal. Some individuals invest in gold to protect themselves against inflation. Yet, investing in actual gold bars may be time-consuming. You can also invest in gold by buying derivatives, gold ETFs, gold receipts, or stocks in companies that mine gold.
7. Annuities
Annuities are a prominent retirement investment option because they offer a fixed income independent of market fluctuations. These may shape a series of monthly payments made over a certain period (fixed-term) or for the rest of your life (lifetime annuity). The amount of money you invest in and actuarial computations, which project future results by analysing demographic and economic patterns, will influence the amount of funds you will get in your retirement account.
You can buy an annuity with your retirement savings or with money you have saved up on your own. However, if you’re purchasing an annuity with money from your retirement fund, you won’t get any money until you reach your “preservation age” and retire.
8. Listed Investment Companies (LICs)
LICs are investment vehicles formed as corporations and traded on a stock market. Most LICs work similarly to managed funds, including an internal or external manager choosing and overseeing the company’s assets on your behalf to offer diversification.
Importantly, LICs are ‘closed-ended’ investments, meaning that there is a fixed number of shares accessible that do not fluctuate. Shareholders may come and go, but still, the capital requirement in the LIC remains constant regardless of who owns it. This allows the asset manager to concentrate on running the investment rather than attempting to obtain money if a shareholder departs or making extra investments if new investors join.
9. Exchange-traded Funds (ETFs)
An exchange-traded fund (ETF) is a managed fund that follows a specific asset or market index and may be purchased and sold on an exchange like the Australian Stock Exchange (ASX). ETFs are often referred to be ‘passive’ investing alternatives since they are designed to follow an index rather than outperform it. This implies that the valuation of your ETF investment will fluctuate in lockstep with the index it tracks.
ETFs are often easier to buy and sell, and they have lower costs than other financial products. They are financial instruments known as exchange-traded products or ETPs that may be purchased and sold on a stock exchange.
10. Investment Bonds
Comparable to a managed fund, if you invest in a growth bond investment (also termed an insurance bond), your assets will be pooled with those of other participants, with an asset manager managing the investments and making daily investment choices. This allows the investor to take a hands-off stance, which might be advantageous when you’re too busy to handle your assets or want to delegate decision-making to a qualified manager.
The key distinction between investment bonds and other types of bonds is how profits are taxed. If you keep an investment bond for at least ten years, you won’t pay extra taxes on any gains you make whenever you sell (or redeem) it. This is because investment bonds are regarded as ‘tax-free’ investments, with profits taxed at 30% throughout the bond’s lifecycle.
Ready To Choose The Right Investment For You?
Investing can be a remarkable way of developing money over time, and investors can choose from various assets, ranging from safe, low-return investments to riskier, higher-return investments. To make an educated selection, you’ll need to know the advantages and disadvantages of each investment opportunity and how they factor into your financial position and strategy.
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