If you can’t get into property…

Consider these investment alternatives and you may just end up being better off.

Buying a home has been hailed for generations as an essential part of the Australian dream. But with house prices increasing faster than earnings, getting into the property market seems more like an impossible dream for first home buyers. You may even be better off renting in the meantime before attempting to get into the property market.

Australian capital city house prices soared by almost 8 per cent in 20141 while wages growth fell to 2.5%2 ―a record-low.

…move into other areas

If property seems out of reach for you at the moment, consider investing in other assets instead of buying a home now or in the future―or to save a home loan deposit more quickly.

You can aim to build wealth with shares, managed funds or a fixed-term investment. And if you’re saving a deposit, some investments could give better returns than a basic savings account.

Some investment options

Consider these options and remember that all investments involve some risk. Explore our investor style calculator so you can understand your own attitude to risk.

1. Shares

When you buy shares―which you’d normally do through a stock broker or online stock broking service―you’re essentially buying part of a company. You can normally buy and sell shares anytime with no minimum time limit imposed on the investment term.

Building a portfolio of shares in different companies and industries can be financially rewarding. But because markets go up and down there are risks―your investment balance is likely to either increase or decrease, and so on throughout different market cycles. 

Start by gaining an understanding of share market cycles and your own attitude to the risks they present.

2. Managed funds

When you invest in a managed fund, your money is pooled with other investors’ and managed by an investment manager. The manager buys and sells shares or other assets on your behalf that ideally increase in value. The fund then distributes income―often called distributions―at predetermined intervals.

Managed funds can be offered by managers specialising in a particular investment technique or industry (sector). They can provide access to assets and markets normally unavailable to individual investors. And you can often invest with a relatively small amount of money and make regular contributions to build your investment over time. See how investing bit-by-bit can make a big difference using our dollar cost averaging calculator.

Some managed funds specify a minimum investment term, although investment returns and risk levels cannot be guaranteed.

3. Fixed-term investments

Rather than investing for an undefined period, you may want more certainty.

Fixed-term investments offer opportunities for predetermined periods at declared rates of interest so you know exactly how much you’ll end up with at the end of the term. The downside is you’ll generally earn less than you would with other types of investments and if you withdraw your money before the end of the agreed term, a penalty will apply.

Fixed-term investments can include unlisted debentures, secured or unsecured notes, bonds and term deposits. Each type will offer specific terms, conditions and investment characteristics, normally outlined in a prospectus.

4. High-risk investments

High-risk investments can be complex, even for the most experienced investor. It’s important to consider the potentially high levels of risk before investing in assets like exchange traded products, futures, options, warrants, hedge funds and others.

Some high-risk investments are offered with the potential for higher returns, which can be tempting for investors aiming to make money in a short period of time. The reality is that you can lose money very quickly.

What’s right for you?

Investing to build wealth or buy a home can be rewarding. Whatever you choose to invest in, start by reading our 7 tips for successful investing and be sure to seek financial advice to ensure the investments you make match your own risk tolerance.

And ask your financial adviser about borrowing to invest―while the interest on a home loan for a property you live in is not tax-deductible, borrowing to invest (gearing) in shares or managed funds can be.


 

1 ABC News, 2 Jan 2015, abc.net.au/news/2015-01-02/home-prices-rise-nearly-8pc-in-2014-boosted-by-strong-december/5996972.
2 Business Insider Australia, businessinsider.com.au/wages-growth-in-australia-is-at-2-5-the-lowest-since-records-began-2015-2.


 

What is your investment style?

Our What Investor Style Am I? Illustrator helps you in determining the investment style that is most appropriate for you.

Try our investment style calculator

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.