A Guide To Investing Cash In Australia

Investing your money in Australia can be a daunting task, especially with the variety of options available. The key to successful investing is to plan, research, and diversify. Before investing, it is important to pay off any debts and have emergency savings to fall back on. It is also crucial to develop an investment plan that aligns with your financial goals, risk tolerance, and investment time frame.

There are four main investment types, also known as asset classes, in Australia: cash investments, fixed-interest investments, shares, and property investment. Each investment type has its own benefits and risks, and by diversifying your investments across these classes, you can minimise your overall risk.

Cash investments include savings accounts that earn interest and are considered defensive investments due to their focus on generating regular income. While these are the least risky type of investment, the value of your savings could decrease if the interest earned doesn't keep up with the rate of inflation.

Fixed-interest investments include term deposits, government bonds, and corporate bonds. These are also considered defensive investments as they provide a regular and sometimes guaranteed income over time. However, as low-risk investments, the income generated may be lower compared to shares or property.

Shares, on the other hand, are considered growth investments as their value can rise, and they may pay dividends. Shares can be bought and sold on a stock exchange, and investing in a range of companies and countries can help minimise risk. However, shares are historically risky as it is difficult to predict a company's future performance, and they can fluctuate with political and economic changes.

Property investment includes residential and commercial properties and is also considered a growth investment as the value may rise, and income can come from rent. However, price increases are not guaranteed, and property may be difficult to sell quickly if you need immediate cash.

Other investment options in Australia include employee share schemes, cryptocurrency, artificial intelligence, term deposits, the Australian stock market, augmented reality, business loans, real estate investment trusts (REITs), virtual reality, hedge funds, options trading, annuities, high-yield savings accounts, government bonds, e-commerce businesses, managed funds, angel investing, peer-to-peer lending, SaaS investment, ETF investment, commodities trading, RPA investment, data centre investment, and more.

When deciding how to invest your cash in Australia, it is essential to understand your financial goals, risk tolerance, and investment time frame. Conduct thorough research on different investment options and consider seeking financial advice to make informed decisions that align with your unique circumstances.

Cash investments: savings accounts with interest

A traditional savings account is a great way to earn interest on your money. Savings accounts typically offer a higher interest rate than transaction accounts, with the Australian government's Moneysmart website citing a competitive rate of around 2% or more. This means that you will earn interest on a monthly or yearly basis, as long as your money is in the account.

However, it's important to note that most savings accounts pay a variable interest rate, which can fluctuate with the economy. Changes to the cash rate by the Reserve Bank of Australia will often trigger changes to savings account interest rates.

To get the most out of your savings account, consider the following:

• Compare savings accounts from different banks to find the best interest rates and terms.
• Understand the conditions of your savings account. Some accounts may require a minimum deposit amount or limit the number of withdrawals you can make.
• Be aware of any fees associated with the account, such as account-keeping or ATM withdrawal fees.
• Take advantage of high-interest rates by setting up automatic transfers from your transaction account to your savings account.
• Keep an eye on your savings account to ensure that it remains competitive. Interest rates are currently on an upward trajectory, so you may be able to find a better deal.

Bonus interest savings accounts are another option to consider. These accounts offer a base interest rate, as well as a 'bonus' rate that is activated when certain conditions are met, such as a minimum monthly deposit or a limited number of withdrawals. While these accounts can offer higher interest rates, be sure to understand the base rate, as it may be lower than that of a traditional savings account.

Fixed-term savings accounts, or term deposits, offer a higher interest rate in return for committing your money for a fixed period, usually between one and five years. While these accounts often require a minimum deposit amount, they can be a good option if you're looking for a guaranteed return and don't need access to your money in the short term.

Remember, when it comes to investing, it's important to consider your financial goals, risk tolerance, and investment time frame. Do your research, understand the risks, and seek professional advice if needed.

Fixed interest investments: term deposits, government and corporate bonds

Fixed-income investments are a great way to diversify your portfolio and protect your money. They are considered less risky than growth assets like shares and property. Fixed-income investments include term deposits, government bonds, and corporate bonds.

Term Deposits

Term deposits function like high-interest savings accounts. They offer higher returns than regular bank accounts and are considered very safe. However, they are also illiquid, meaning that once the money is locked away, it's difficult to withdraw it before the term ends. Term deposits generally lock in the interest rate at the start, making it easy for investors to plan ahead.

Government and Corporate Bonds

Bonds are essentially debt securities, where the investor loans money to a government or corporation. In return, the investor receives regular interest payments over a predetermined period, ranging from 1 to 30 years. The interest rate is usually modest but guaranteed, which is why this investment class is also called 'fixed income'. At the end of the term, the investor also gets back their initial investment amount. Bonds can be purchased via the Australian Securities Exchange (ASX) or directly from some government agencies.

There are two types of government bonds: Australian Government Bonds (AGBs) and Semi Government Bonds (Semis). AGBs are considered low-risk investments and offer a fixed return based on their current trading price. Corporate bonds, on the other hand, are somewhat riskier as there is a chance the company may go out of business and default on the loan.

When investing in fixed-income securities, it's important to consider the potential risks, such as interest rate risk and credit risk. Additionally, the liquidity of some fixed-income securities may be lower than other investments.

Shares: buying into a company via a stock exchange

Shares, also known as stocks or equities, are a type of investment where you buy a stake in a company, becoming a part-owner of the business. As a shareholder, you will experience both the financial successes and failures of the company.

There are several ways to buy shares in Australia:

• Using a broker: You can use an online broking service or a full-service broker. Online brokers are cheaper and more popular, with fees starting at around $20 per trade, but you will be making your own investment decisions. Full-service brokers will trade for you and advise you on what to buy and sell, but fees are typically a percentage of the trade value, with a minimum fee.
• Buying shares directly: You can buy shares directly from a company when they first put them on the market via a prospectus, or Initial Public Offering (IPO). An IPO is when a company lists on a stock exchange to raise funds by selling shares to investors. You can also buy shares through an employee share scheme or invest indirectly through a managed fund.
• Using an online platform or app: There are several online investment platforms and trading apps that offer a range of share-dealing services, including access to international markets and the Australian Securities Exchange (ASX). Examples include SelfWealth, Stake and CMC Markets Invest.
• Using a robo-advisor: Robo-advisors are a simple, inexpensive way to invest in stocks. You provide information on your financial situation and goals, and an automated system gives you a ready-made investment portfolio. Fees start at around 0.3% per annum.
• Using a financial advisor: Financial advisors can help you to develop an investment plan and discuss your goals in detail. They will also be able to advise on different types of investments, such as those run according to ethical or environmental principles.

Before investing in shares, it's important to do your research and understand the risks involved. Ask yourself: am I comfortable with the level of risk, and can I afford to lose money? Do I understand this type of investment, and could I get my money out easily if I needed to?

Property investment: residential or commercial

Investing in property is a popular choice for Australians, with many choosing to put their money into residential or commercial property. Both options have their advantages and disadvantages, and it's important to understand the differences before making a decision. Here are some key things to consider when deciding between investing in residential or commercial property in Australia:

Residential Property Investment

Residential property investment typically involves purchasing a house, apartment, or other dwelling to rent out to tenants. This can be a great way to build wealth and generate passive income. Some benefits of investing in residential property include:

• Strong demand: People always need a place to live, so there is usually strong demand for residential properties.
• Lower entry cost: Residential properties generally have a lower purchase price than commercial properties, making them more accessible to first-time investors.
• Easier to finance: Banks and lenders typically offer more favourable loan terms for residential properties, with lower deposit requirements and interest rates.
• More stable income: Residential leases tend to be shorter, which means there is a lower risk of extended vacancy periods.
• Easier to manage: Residential properties are generally smaller and easier to maintain and manage than commercial properties.

However, there are also some drawbacks to consider when investing in residential property:

• Lower yields: Residential properties typically offer lower rental yields, usually between 3-4%.
• Higher maintenance: Residential tenants may not take as good care of the property, and landlords are responsible for most maintenance and repair costs.
• Less control over expenses: Landlords are responsible for paying council rates, taxes, and insurance, which can impact cash flow.
• Slower capital growth: Residential properties may offer slower capital growth compared to commercial properties, especially during economic booms.

Commercial Property Investment

Commercial property investment involves purchasing a property used for business purposes, such as offices, retail spaces, or industrial warehouses. Commercial property investment can offer several advantages over residential:

• Higher yields: Commercial properties typically offer higher rental yields, often between 5-12%.
• Longer leases: Commercial leases tend to be longer, providing more secure income and reducing vacancy rates.
• Better cash flow: Commercial tenants usually pay all outgoings, including council rates, taxes, insurance, and maintenance costs.
• Value-adding opportunities: Commercial properties offer more opportunities to add value through renovations or change of use.
• Tax benefits: Commercial properties provide generous tax benefits, including substantial depreciation allowances and building allowances.

However, there are also some risks and challenges associated with commercial property investment:

• Higher risk: Commercial properties are more vulnerable to economic shocks, and their values can fluctuate more significantly.
• Higher entry cost: Commercial properties typically have a higher purchase price, and lenders often require larger deposits (around 30%) for these investments.
• More complex: Commercial leasing is more complex, and it's important to work closely with legal and financial advisors.
• Slower to sell: Commercial properties may take longer to sell if you need to exit the investment.

Both residential and commercial property investment have their advantages and can be a great way to build wealth. It's important to carefully consider your financial goals, risk tolerance, and the time you can dedicate to managing the investment before deciding which option is right for you. Conducting thorough research and due diligence is essential to making an informed decision.

Cryptocurrency: volatile but potentially high returns

Cryptocurrency is a high-risk, high-reward investment option. The value of cryptocurrency is extremely volatile, often fluctuating by huge amounts within a short period. If you invest in cryptocurrency, you must be prepared to lose what you invest.

Cryptocurrency is a digital asset that exists as digital tokens stored in a digital "wallet". It relies on cryptography and technology such as blockchain for security and other features. Anyone can create a cryptocurrency, so there can be thousands in circulation at any time. The price of cryptocurrency can fluctuate at extreme levels, often based on market speculation and media hype.

In Australia, cryptocurrency is not legal tender and is not widely accepted as payment. Most people don't use it for everyday transactions. It is not a stable investment option to build your savings.

However, cryptocurrency can be a powerful buffer against inflationary pressure on fiat currency. It can also be used for payment systems, to execute automated contracts, and run programs. Some stores accept cryptocurrency as payment for goods and services, and some ATMs allow you to withdraw it as physical money.

When investing in cryptocurrency, it's important to remember that it is largely unregulated. The platform where you buy and sell cryptocurrency may not be regulated, so you may not be protected if the platform fails or is hacked. Additionally, your funds may be used for other investments, such as loans, which may jeopardise your investment.

To get started with cryptocurrency, you'll need to compare and choose an online exchange or trading platform. Look for an exchange that offers a wide selection of coins, Australian-based and personalised customer support, advanced trading features, and the ability to buy coins directly with AUD. It's also important to do your research, read customer reviews, and choose an exchange that is upfront about its fees.

Once you've chosen an exchange, signing up is usually straightforward. You'll need to set up 2-factor authentication to add an extra layer of security to your account. After verifying your email and identity, you can add your bank account, select a payment method, and make a deposit.

When you're ready to purchase cryptocurrency, go to the buy/trade crypto section of the exchange and select the cryptocurrency you wish to purchase. Enter the amount you want to invest, double-check the details, and confirm your purchase.

Keep in mind that investing in cryptocurrency is highly speculative, and you should only invest what you can afford to lose.

Frequently asked questions