If you’ve found yourself in the fortunate position of having $10,000 in your account – whether you’ve been saving for a while or you’ve had a windfall – you may be wondering how to invest it.
Leaving it in your savings account means it’s losing value every single day; invest it wisely, and you can turn that sum into a larger one in the future with minimal effort. Here are some of the most common investment vehicles in Australia today.
Equities
Equities (AKA shares, stocks or securities) are one of the most common investment vehicles in Australia.
I talked about getting started investing with $500 over here, and many of the same principles apply with $10,000.
If you know a bit about the share market and how to choose a good investment, you can buy shares in individual companies. Be wary of websites or forums where people dole out free advice about what to buy, as you don’t know what their vested interest is.
You can pay a full-service stockbroker who can provide personal advice, but if you’re not really sure, you may be better just investing into a more diversified option.
In a managed or index fund, you buy “units” rather than shares, putting your money into a shared pool that is used to invest in a range of assets. In active funds, an investment manager will pick stocks they think are good value, so you have to trust their skills, and you’ll pay a higher fee. Passive funds tend to simply track certain indexes (such as the top 100 companies in Australia) so have lower fees.
Exchange traded funds (ETFs) are kind of a mix between individual equites and funds. They have the same diversification as funds, meaning they are invested in a range of assets from a specific category, but you own shares in an ETF just like with individual companies. It carries lower risk than buying individual shares, but it’s quicker, less expensive and more flexible than managed funds.
To get started, you’ll need a broker – I like low-cost option Stake, which has an app and a website.
Cryptocurrencies
Unless you’ve been living under a rock, you’ve heard about the cryptocurrency craze. Bitcoin and other blockchain currencies have made some people a lot of money – but people have also lost a lot of money by investing in a hot new coin that swiftly tanked, or by using a crypto wallet that disappeared with their funds.
There are research tools available that let you make a more educated investment, but be aware that it’s still a fairly unregulated industry.
To get started, you’ll need to choose an exchange platform (I use Coinspot) and verify your identity. Remember that investing in crypto creates a tax obligation in the same way as other investments.
P2P lending
Peer-to-peer (P2P) lending is like Uber for your savings, in that it matches someone who wants to borrow money with someone who wants to lend money. There are plenty of platforms now that facilitate this arrangement, such as Harmoney, Society One and Plenti.
By lending your money in a P2P program, you can earn interest on your loan just like the bank does. You can pick and choose your loan periods and you’ll earn greater returns than on interest in a bank account, but there is a risk that your borrower will default. Keep in mind that the people who borrow from a P2P lending scheme have often been refused a loan by traditional loan institutions.
Term deposit
A good old-fashioned term deposit is a simple and almost zero risk way to invest your money. And now interest rates are on the rise, they are beginning to look a little more attractive. Bu watch the CPI to make sure you really are ahead.
You just give your lump sum to a bank or other financial institution and they lock it away for a set period of time, paying higher interest than a regular savings account. But not that much higher; one of the best I found for a 12-month investment was Judo Bank, at 2 per cent. You can choose to have the interest paid out or reinvested into your deposit for compounding benefits. Usually, the longer you lock it away, the higher your interest rate. Because it’s so low risk, it can be a good place to park money while you save for a house deposit.
However, most term deposits require a minimum investment, often around $5000, and the rates on term deposits are at historical lows, offering unexciting returns on your investment. And if you break the deposit term (most commonly between six months and three years), you usually forfeit any interest earned up until that point, so your money isn’t available to you in case of emergency.
Superannuation
If you work for an employer, then 10 per cent of your pre-tax wage or salary should be automatically paid into your super fund – you probably don’t even think about it. That money is usually invested into various assets, including property, equities and bonds, so it grows over time to help pay for your retirement.
Paying extra money into your superannuation is a good long-term investment into your future. Smaller contributions now will make a big difference in the future thanks to the power of compounding. You can also consider salary sacrifice, which means your employer pays a higher percentage of your pay into your super. This will improve the outlook of your retirement fund, but also effectively lower your taxable income right now.
Just remember that you won’t be able to access this money until you retire, so make sure you don’t need it until then. The exception is certain emergency situations and the First Home Super Saver Scheme.
Gold
Gold is a perennially popular investment because it is relatively stable and consistent in the face of market fluctuations. Because of this stability, it is generally used as a way to secure wealth rather than make money – meaning it’s a good part of a diversification strategy. If stocks, property and Bitcoin all tank suddenly, gold is likely to hold its value so at least part of your portfolio is still worth something.
You can purchase genuine, real-life bullion as bars, coins or even jewellery, and store them at the depository or at home (I highly recommend a fire-proof safe). ABC Bullion and Perth Mint are good places to start.
Property
This is one of the harder ways to invest because of the size of the initial outlay required. In fact, $10,000 won’t get you very far in today’s market. But if you’re lucky enough to have parents who can loan you extra and/or sign as guarantor in lieu of a 20 per cent deposit, this could be a good option.
But if you’re dead set on property but can’t afford the deposit right now, you can look at services such as Bricklets or BrickX that let you buy fractions of investment properties in exchange for a corresponding fraction of the rent. Be aware of the high costs of these services.
Bear in mind, with interest rate increases, you’ll have to take into account additional mortgage repayments. The Reserve Bank of Australia has signalled it would continue to increase rates over the coming months.
What’s your preferred investment vehicle? Got any under-the-radar ones you want to share? Sound off in the comments.