There’s more to investing than super and property. Take a look at the different investment options available in Australia which you might consider when creating a portfolio.
While property seems to get the lion’s share of attention when it comes to investing money in Australia, a 2017 study by the Australian Securities Exchange (ASX) revealed that shares, along with other investments traded on an exchange, were in fact the most popular investment choices among Aussies1,2.
What different assets can you invest in?
If you’re interested in seeing what your investment options are outside investing in property and super, here’s a list of some of the common investment options in Australia you could consider when building your own investment portfolio.
If you put your money into cash investments (such as savings accounts and term deposits), the returns will often be lower in comparison to other investment products. However, these types of investment options typically provide stable, low-risk income in the form of a regular interest payment, so they may be a good option if you’re risk averse or working to a short timeframe.
Fixed interest or fixed income investments
Fixed interest investments (also known as fixed income or bonds) usually have a set investment period (eg five years), and provide predictable income in the form of regular interest payments. They tend to be less risky when compared to other types of investments, so can be used to provide balance and diversity in an investment portfolio. Fixed interest investments are issued by governments and companies in Australia and internationally.
A government bond is one example of a fixed interest investment. It provides the holder with regular interest payments, and once matured, the amount originally invested (known as the principal) can be returned to you. However, the value of the investment doesn’t increase with inflation.
There are also different types of fixed interest investments with different investment timeframes and different risks – for example, a fixed interest investment issued by a company can be risker than one issued by the Australian government.
If you purchase shares (also known as equities or stocks) in Australian or international companies, you’re essentially buying a piece of that company, making you a shareholder. If the shares of the company grow in value, the value of your investment will also increase, and you may receive a portion of the company’s profits in the form of dividends. However, if the share price falls, the value of your investment will also fall. If you manage the shares yourself, you’ll have to decide when to buy shares, and when to sell them. It’s also worth keeping in mind that you may not receive any dividends at all.
If you’re looking for how to invest in shares, get in touch with an AMP financial adviser who can guide you through the process.
In a managed fund (also known as a managed portfolio), your money is pooled with other investors on your behalf by a fund manager. A managed fund can focus on one asset class, for example, an Australian shares managed fund will only hold shares in Australian companies. Or, it can be a diversified managed fund and include a mix of cash, shares and property. One of the benefits of pooling your assets in this way is that it can also give you the ability to gain access to investments and a level of diversification that isn’t usually obtainable by an individual.
The amount of money you invest is equal to a set number of units, and any growth or earnings are then divided among all investors depending on how many units each investor owns. Any income generated on these earnings will also be subject to tax based on the individual income tax rate of the owner.
Because investment returns are tied to movements in investment markets, it’s important to keep in mind that putting your money into a managed fund won’t necessarily guarantee you a positive investment return.
Exchange traded funds (ETFs)
An ETF is a type of managed fund that can be bought and sold on an exchange, such as the Australian Stock Exchange (ASX), and which tracks a particular asset or market index. ETFs are usually ‘passive’ investment options as the majority of these investment products aim to track an index, and generally don’t try to outperform it. This means the value of your investment in an ETF will go up and down in line with the index it is tracking.
ETFs tend to be easy to buy and sell and have lower fees than some other types of investment products. They form part of a larger class of investment products called exchange traded products, or ETPs, which can be bought and sold on an exchange.
Like a managed fund, if you decide to put money into an investment or growth bond (also known as an insurance bond), your money will generally be pooled with money from other investors, with an investment manager overseeing the funds and making the day-to-day investment decisions. This makes for a hands-off approach for the investor, which can be helpful if you’re too busy to oversee your investments, or prefer to have a knowledgeable manager making the decisions.
The main point of difference with investment bonds is the way earnings are taxed. If you hold onto an investment bond for at least 10 years, you won’t have to pay additional tax on any profits that you’ve made when you eventually sell (or redeem) your investment. That’s because such investment bonds are seen as ‘tax-paid’ investments, where earnings are taxed within the bond along the way at 30%. If you’re paying more than 30% in income tax, an investment bond may be a tax-effective structure to help you invest.
A popular option for retirement, annuities provide a guaranteed income regardless of what’s happening in financial markets3. These can be in the form of a series of regular payments either over a set number of years (fixed-term), or for the remainder of your life (lifetime annuity). The payments you receive will depend on things like the amount you put in and actuarial calculations, which estimate future outcomes by looking at economic and demographic trends.
You can purchase an annuity through your super or with ordinary savings. It’s important to note though, that if you’re using your super money for the purchase, you won’t be able to access the funds until you reach your preservation age and retire.
Listed investment companies (LICs)
LICs are a type of investment vehicle which are incorporated as companies and listed on a stock exchange. Most LICs operate in a similar way to a managed fund with an internal or external manager responsible for selecting and managing the company’s investments on your behalf to provide diversity. LICs commonly invest in shares in other companies.
It’s important to note that LICs are ‘closed-ended’ investments, which means there’s a set amount of shares available that does not change. Shareholders can come and go, but the amount of capital in the LIC doesn’t change as investors change. This means the investment manager can focus on managing the investment, rather than trying to raise funds if a shareholder exits the investment or making additional investments if more investors come on board.
Real estate investment trusts (REITs)
A REIT is a type of property fund listed on a public market, such as the ASX, in which investors can purchase units. Similar to a managed fund, your money in the fund is then pooled and invested in a range of property assets, which may include commercial, retail, industrial, or other property sectors.
REITs can provide investors with exposure to the property market in a way that is more diversified – commercial and industrial property and potentially more cost-effective – than buying a single property.
As a precious metal, gold is a commodity that can be bought or sold based on set market value. Some people like to invest in gold as a way to hedge against inflation. However, investing in physical gold bars can be cumbersome. Other ways to invest in gold include buying derivatives, gold receipts, gold ETFs and gold mining stocks.
Australia’s alternative finance market has grown by 53% in the 12 months to September 2017 as investors continue to tap into emerging trends and explore new ways to grow their wealth4.
In addition to the investment options listed above, there are a number of emerging trends you might consider when building your wealth.
Peer-to-peer lending (P2P)
P2P lending is a way you can borrow money without going through a traditional lender (such as a bank). It operates by connecting investors with companies or people looking for a loan.
Most P2P lending is run via an online platform that acts as an intermediary between investors and borrowers and charges a fee-for-service. Through the platform, the lender will be able to see what loan they would like to fund, and, the borrower must pay the loan back over time with interest.
Some platforms also allow investors to diversify their investment across other assets (such as a managed fund). The details, including the amount of control a lender has, length of the loan and at what interest rate, varies between P2P providers.
Unlike regular currency like coins and notes, cryptocurrency is a virtual currency that exists as a digital token5. The most well-known type of cryptocurrency is Bitcoin, but there are hundreds of others including Ethereum, Litecoin and Ripple.
Cryptocurrencies are kept in a digital wallet and can be used to pay for real goods and services. Transactions are recorded using a vast digital ledger called a blockchain. It’s most commonly used for online payments but can in some cases can be used in stores. However, because cryptocurrency is not legal tender, it’s not accepted everywhere and is not backed by any government.
Factors to consider when making investment decisions
Before putting your money into any investment option it’s important to make sure you understand, and are comfortable with, the level of risk involved, the investment timeframe, any potential costs involved, and how the product could help you reach your financial goals.
It’s also important to look into any potential legal and tax implications, as these can vary depending on the type of investment you make.
Risks involved with investing
Different types of investments carry different levels of risk which can influence the returns you may receive. People tend to have different appetites for risk, so it’s important to understand yours before investing. The AMP Investment Style calculator can help you to understand your risk appetite..
Generally, investments that carry more risk are better suited to long-term timeframes, as these often come with greater short-term volatility, which means they can change rapidly and unpredictably. However, being too conservative with your investments may make it harder to reach your goals.
A good way to manage risk can be to spread your investments across different asset classes. This is known as diversification, and is one of the first things you will learn about when looking into how to invest for beginners.
Diversification reduces your overall investment risk and leaves you less exposed to a single economic event. So if one sector or asset performs badly, the other areas of your investment may not be as badly affected.
It can also be a good idea to diversify within asset classes. For example, a share portfolio may hold shares across different sectors such as banking, resources, healthcare and technology, and across both domestic and international markets.
How to start investing
If you’re interested in building your investment portfolio, you can use these tips to help you get started:
- Do your research – think about how much you can afford to invest, what your options are, and what types of investment products you could use to help you reach your goals.
- Know your risk profile – work out how much risk you’re willing to take and what types of investment products might fit within this. Different investment products carry with them different levels of risk, so it’s important to understand the risk involved in each investment product or strategy you’re considering.
- Speak to an adviser – if you have any questions or want more help or information, speak with your financial adviser. If you don’t have an adviser but would like more information, you can call us on 131 267 to find an adviser near you.
1 ASX, ‘Australian Investor Study 2017’, pg. 4, figures 2, 3
2 ASIC’s MoneySmart website, ‘Annuities’, https://www.moneysmart.gov.au/superannuation-and-retirement/income-sources-in-retirement/income-from-super/annuities
3 PMG, ‘Cultivating Growth: The 2nd Asia Pacific Alternative Finance Industry Report’, 20 September 2017, pg. 71, paragraph 1
4 ASIC’s MoneySmart website, ‘Cryptocurrencies’, https://www.moneysmart.gov.au/investing/investment-warnings/virtual-currencies
Weekly market update 17-02-202317 February 2023 | Blog This week, Dr Shane Oliver talks about the RBA right to focus on getting inflation down but it may have done enough; Australian home prices; most US inflation indicators still falling; and more. Read more
The 2022 Australian Federal election and investors20 April 2022 | Investing The Federal political landscape has become somewhat less stable since the 2007 election with six changes in PM, “minority government” at times and a rise in the importance of independents. Read more
Responsible and ethical investing06 April 2022 | Investing If you’d like your money to make a difference to the world as well as to your future, ethical investing may be for you. Learn about ESG considerations and the options available to you. Read more
What you need to know
Any advice and information is provided by AWM Services Pty Ltd ABN 15 139 353 496, AFSL No. 366121 (AWM Services) and is general in nature. It hasn’t taken your financial or personal circumstances into account.
It’s important to consider your particular circumstances and read the relevant product disclosure statement, Target Market Determination or terms and conditions, available from AMP at amp.com.au, or by calling 131 267, before deciding what’s right for you.
You can read our Financial Services Guide online for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. You can also ask us for a hardcopy.
All information on this website is subject to change without notice. AWM Services is part of the AMP group.