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How to invest money: getting started

October 2020

Article |  4-minute read

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Investing can be as simple and affordable as you like.

Whether you’re building your wealth, funding your children’s education or creating a nest egg for retirement, investing may be the key to maximising your money. Compared to saving your money, investing often provides better long-term returns.

Understand your investment options

There are different investment options available depending on your financial goals, investment style, and the amount of risk you’re comfortable taking on. Here are the most common ways to invest your money.

Fixed interest

Fixed interest assets provide a steady income stream through regular interest payments. Bonds are the most common type of fixed-interest investments, and they fall into two categories: government bonds and corporate bonds. When you purchase a bond, you’re effectively loaning money to a government or company to fund certain activities such as expansion.

Bonds are usually more stable than other investments, but they offer limited potential for capital growth.

If you’re keen to invest in bonds, accessing them individually can be tricky as they’re generally offered to particular investors, such as institutions. Instead, you can invest in a managed fund or exchange-traded fund that provides exposure to bonds.

A term deposit is another type of fixed-interest investment. It’s a savings product with a set interest rate and term offered by a bank, credit union or building society. During that term you generally can’t access your money without incurring penalties. 

Australian and international shares

When you purchase shares, you’re effectively buying a piece of a publicly listed company. You usually make money through income from the shares (paid as dividends) or by selling your shares at a higher price than you purchased them (realising a capital gain).

Shares tend to be one of the riskier investments: while they offer potential for good returns, there’s also the risk of suffering losses. In times of volatility they can increase or decrease in value quite unpredictably. Returns differ between shares, which is why it pays to research the companies you want to invest in or seek professional advice.

If you want to invest in shares, you can pick and choose individual shares to build your own portfolio. This is a good option if you’ve already done the research and know exactly which shares you want to buy.

Managed funds and exchange-traded funds are other share-investing options where you can fairly easily invest in a wide group of shares whilst letting a professional manager reach the decisions on which shares to invest in.

Property

Whether it’s a house, unit or industrial premises, property has long been an attractive and popular investment in Australia because of the potential of making money through rental income and capital gains if sold at a profit.

Property investment can come with its own risks and there is the potential that you could suffer losses instead of making a profit. It’s worth considering how your investment could be impacted by any volatility in the property market, or how you would manage without rental income between tenants.

Property can be one of the harder investments to buy into, simply because it requires a lot of money. According to a report by SQM Research, houses across Australia’s capital cities offer an average rental yield of only 2.8%, while apartments deliver slightly more at 3.8% (as of October 2020). This makes property a less lucrative investment than it once was. (Rental yield is the yearly amount of cash you get for renting a property as a percent of its total value.)

Savings account

Stowing away your cash in a savings account is a straightforward way to invest: you can easily portion some of your salary and place it in a high-interest savings account each month. While savings accounts don’t offer the highest returns, they are relatively low risk.

Choose your approach

A financial adviser well-versed in investing has expertise in working towards people’s financial goals. They can advise on suitable investments, budgeting and other financial objectives, and they can help manage your portfolio. 

If you’re not sure it’s worth paying for financial advice, do a little research to discover the difference specialist advice can make.

Evaluate risks and other factors

Before you start investing, there are crucial points to consider.

Legal and tax implications

As soon as you become an investor you’re subject to investment laws. If you decide to invest overseas you’re required to stick to the foreign investment laws of the country you’re investing in. Make sure you’re aware of these before getting started.

Also, any profit you make from your investments are typically included in your income for tax purposes whether they’re in Australia or overseas. The Australian Taxation Office has more information on investments and tax.

Know the level of risk you are taking on

While some investments are deemed ‘safer’ than others, any investment exposes you to some level of risk. There’s a chance your investment could increase in value and provide a profit, but there’s also the possibility it will result in a loss. Find a level of risk that you’re comfortable with and stick to investments that match your appetite.

Diversification

Diversifying investments means you’re balancing your portfolio with a mix of investments. This reduces your exposure to risk, as certain investments can help offset any losses generated by others.

A financial adviser has the expertise in these areas. If you need to navigate the rules around your investments, better understand risk or figure out ways to balance your portfolio, a financial adviser can provide professional input.

Develop a strategy

Before starting to invest, determine your overall objective. You might want to pay off debts first, such as your credit card, mortgage or personal loan. You may be saving for the future so you can build an emergency fund, raise a family or pay for your children’s education. Whatever your circumstances, ensure you’re actively working towards your financial goals.

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The views and opinions expressed are those of the author only and do not necessarily state or reflect those of ANZ. The information provided is general in nature only and does not take into account your personal objectives, financial situation or needs. Please consider its appropriateness to you before making any investment decisions. Past performance is not an indication of future performance. Any case studies are shown for illustrative purposes only, and are not a prediction of the actual outcomes you will achieve. ANZ recommends that you read the applicable Product Disclosure Statement or offer documentation and consider its appropriateness to you prior to making a decision to acquire or hold a financial product. Any investment is subject to investment risk, including possible repayment delays and loss of income and principal invested. Returns can go up and down. Information is current as at the date articles are written as specified within but is subject to change. ANZ and its related entities make no representation as to the accuracy or completeness of the information.