Invest Wisely: A Guide To Savings In Australia

Investing your savings can be a great way to grow your wealth and achieve your financial goals. However, it's important to do your research and understand the risks involved. When considering how to invest your savings in Australia, there are several options to choose from, including shares, property, managed funds, exchange-traded funds (ETFs), and more. It's also crucial to have a budget in place and to understand the level of risk you're comfortable with before making any investment decisions.

How to invest in shares

If you're looking to invest in shares, you'll need to do your research and get your finances in order. Here are some steps to help you get started:

• Decide what you want from shares: Are you looking for regular income or capital growth? Knowing what you want to achieve will help guide your investment decisions.
• Stay up-to-date: Keep an eye on economic and financial market changes. This will help you make informed decisions about when to buy and sell shares.
• Research and compare companies: Start with what you know and consider the risks and returns. Look at the company's financial statements, annual reports, and market performance.
• Diversify your portfolio: Spread your investment across different industry sectors to lower your risk. Don't put all your eggs in one basket!
• Keep track of your shares: Set up company alerts and review them regularly. This will help you stay on top of your investments and make informed decisions.
• Get professional advice if needed: Speak to a broker, accountant, or financial adviser if you're unsure about anything. It's better to seek help than to make costly mistakes.
• Choose a broker: You'll need a broker to conduct the actual transaction of buying or selling shares. You can choose between an online broking service or a full-service broker.
• Understand the costs: Buying and selling shares incur brokerage fees on top of the share price. These fees vary depending on the broker and the size of the transaction.
• Know the risks: Investing in shares is considered high-risk, and you could lose some or all of your investment. Be comfortable with the risks involved and only invest what you can afford to lose.
• Start with a plan: Think about why you want to invest, how much you want to invest, and how long you want to invest for. Having a clear strategy will help you avoid making irrational decisions.
• Educate yourself: Learn about the economy, interest rates, exchange rates, and government policies. Understand how these factors may affect a company's performance and, consequently, the value of your shares.

Remember, investing in shares is a long-term strategy, and it's important to do your due diligence before committing your money.

How to invest in ETFs

Exchange-traded funds (ETFs) are a popular investment option in Australia, offering a simple, low-cost way to achieve long-term returns from the share market without the complexity of picking stocks. Here's a step-by-step guide to investing in ETFs:

• Choose an ETF trading platform: ETFs are traded on the stock market, so you'll need to sign up with a share trading platform or investment app. Consider the platform's fees and how many markets are available for trading. Some popular options include Raiz Invest and Spaceship.
• Create an account: Sign up with your chosen platform by providing personal details and proof of ID. This usually includes your name, address, date of birth, contact details, tax file number, and bank account details.
• Do your research: Understand the different types of ETFs available, such as passive and active ETFs, and choose the ones that align with your investment goals and risk tolerance. Passive ETFs aim to replicate the performance of a broader market index, while active ETFs aim to outperform the market and may carry higher fees and risks.
• Buy the ETF: Search for the ETF by its name or ticker code on your trading platform and place a buy order. You can choose to purchase a specific number of ETF shares or specify a total dollar amount to invest.
• Track the performance of your ETF: ETFs are typically long-term investments, but it's important to monitor their performance to ensure they remain aligned with your overall investment goals and strategy. Be patient, as the normal investing horizon for ETFs is around five years or more.

When investing in ETFs, it's essential to understand the fees involved. These may include management fees (also known as expense ratios or MER), brokerage fees for buying and selling, and the buy/sell spread. Additionally, be mindful of potential risks, such as market fluctuations and the possibility of not achieving the same returns as picking individual stocks.

How to invest in cryptocurrency

Cryptocurrency is a digital currency that relies on cryptography to prevent fraud. It is recorded on a decentralised system, meaning it has no central issuing or regulating authority.

Step 1: Compare and Choose an Online Exchange or Trading Platform

• Compare different crypto exchanges and choose one that suits your preferences and trading goals.
• Consider factors such as company authenticity, platform security, fees, the number of coins offered, and the ability to buy coins directly with AUD.
• Examples of Australian crypto exchanges include CoinSpot, Digital Surge, Easy Crypto Australia, eToro Australia, and Independent Reserve.

Step 2: Sign Up and Verify Your Email and Identity

• Choose a username and password, provide personal information, and set up two-factor authentication for added security.
• Verify your email and identity by providing proof of residence and a form of ID, such as a passport.

Step 3: Add Your Bank Account and Make a Deposit

• Link your bank account and select a payment method.
• Make an AUD deposit into your account, which is typically free.

Step 4: Select the Cryptocurrency You Want to Trade

Go to the buy/trade crypto section and choose the desired cryptocurrency.

Step 5: Enter the Amount and Confirm Your Purchase

• Specify the amount of AUD you want to invest or the amount of cryptocurrency you wish to buy.
• Double-check the details and confirm your purchase.

Other Considerations:

• Understand the Risks: Cryptocurrency investments are high-risk and volatile. Be prepared to lose what you invest, as the value can fluctuate significantly within a short period.
• Storing Cryptocurrency: You can store your cryptocurrency in a digital "wallet" provided by the exchange. Alternatively, consider a hardware wallet for added protection from hackers.
• Regulation and Taxation: Cryptocurrency buying, selling, and trading are legal and safe in Australia when using reputable exchanges. However, cryptocurrency is not legal tender and is not widely accepted as payment. Ensure you understand the regulatory and tax implications, as they can vary for crypto investments.
• Scams and Security: Be cautious of scams and always verify the authenticity of exchanges and their customer support. Be aware that hackers can potentially steal the contents of your digital wallet.
• Research and Education: Take the time to research and understand the crypto space before investing. Start small and learn about crypto to make informed investment decisions.

How to invest in property

There are many ways to invest in property, and it is a popular option in Australia. Here is a step-by-step guide to investing in property:

• Learn how to make money from property investment: There are several ways to profit from property investment, including capital gains (growth in the value of the property), passive income (where rental income is higher than expenses), and tax benefits. Understanding these will help you choose the right investment strategy.
• Set financial goals: Determine your financial goals and timeframes. For example, you may want to earn a passive income of $60,000 per year within the next 20 years. This will guide your investment strategy and property choices.
• Choose an investment strategy: Research different property investment strategies, such as buying an owner-occupied home, long-term buy-and-hold, positive cash flow, negative gearing, or renovating to sell or rent. Consider reading books and seeking advice from independent advisors.
• Be cautious of salesmen: Be wary of companies offering "investment advice" who may be more interested in earning commissions from property sales than providing unbiased advice.
• Decide on your strategy: Choose one strategy that suits your goals and stick to it. This will help you become proficient and successful with that approach.
• Consult a mortgage broker: Before you start looking for properties, understand your borrowing capacity and the required deposit by consulting a mortgage broker. This will give you a realistic idea of your budget.
• Research the market: Learn how to analyse suburbs and identify those with strong growth potential. Look for areas with a growing population, gentrification, or other positive economic indicators.
• Analyse potential properties: Choose a few properties and perform a detailed analysis, including cash flow analysis and value-added opportunities. This will help you understand if the property will provide a good return on investment.
• Get pre-approval for a loan: Once you have found a suitable property, get pre-approval from your mortgage broker based on the valuation of the property. This will speed up the loan process when you make an offer.
• Start making offers: When you are ready, start making offers on properties. It is a good idea to practise negotiating by making offers on properties that you may not be serious about buying. This will build your confidence and skills for when you find the right property.

Common Property Investment Strategies

• Owner-occupied home: This is the most common strategy, where individuals purchase a home to live in. The property may increase in value over time due to market appreciation or renovations.
• Long-term buy-and-hold: This strategy involves buying a property and holding it for the long term, aiming for capital growth. Rental income may also be a secondary goal.
• Positive cash flow: This approach focuses on generating passive income by investing in properties with rental income higher than expenses.
• Negative gearing: This strategy involves purchasing a property where expenses are higher than rental income, with the expectation that capital growth will outweigh the negative cash flow.
• Renovate to sell or rent: This strategy involves buying a property in need of renovation, improving it, and then either selling for a profit or renting it out for higher returns.
• Dual occupancy: This involves creating two separate incomes from one block of land, such as through a granny flat or converting a single house into two units.
• Duplex or second dwelling: This strategy involves building or purchasing two properties on one block of land, which can be strata-titled or simply held as separate houses.
• Property development: This includes developing townhouses, villas, unit blocks, or high-rises. It is a riskier strategy but can be profitable.
• Property syndicates: This approach involves investing in a property syndicate or fund, where your money is pooled with other investors to purchase properties.
• Commercial real estate: Commercial properties often require a larger deposit (around 30%) but can offer higher rental yields, and tenants typically cover most expenses.
• House and land packages: This strategy involves purchasing a block of land and building a new house, which may be eligible for government grants or concessions. However, be cautious of overpriced packages and ensure there is ongoing demand for new properties in the area.

How to invest in gold

Gold is a precious metal that can be bought or sold based on its market value. It is often used as a hedge against inflation.

Bullion, Bars, and Coins

These are the best options for owning physical gold. However, there are mark-ups to consider, as producing coins from raw gold is costly, and dealers will also add a mark-up to their prices. To avoid this, you can buy gold bullion directly from the Royal Australian Mint. You will then need to consider storage options, such as renting a safe deposit box. Selling gold bullion can also be difficult, as dealers may offer you a price below the current spot price.

Gold Certificates

Gold certificates are notes issued by a company that owns gold. They are usually for unallocated gold, meaning there is no specific gold associated with the certificate, but the company has enough to back all outstanding certificates. You can also buy allocated gold certificates, but the costs are higher. The Perth Mint, backed by the Government of Western Australia, is one of the most desirable options for gold certificates.

Exchange-Traded Funds (ETFs)

If you don't want to own physical gold, a gold ETF is a good option. ETFs are passive investments that replicate market returns. An example of a gold ETF is ETFs Metal Securities Australia Ltd (ASX: GOLD).

Futures Contracts

Futures contracts are a highly leveraged and risky choice. They are agreements to exchange a specified amount of gold at a specified future date and price. As the gold price moves, the value of the contract fluctuates, and the accounts of the seller and buyer are adjusted accordingly.

Gold Stocks

You can gain indirect exposure to gold by taking a position on companies within the gold supply chain. Gold stocks don't always move in the same way as bullion, as there are other factors that drive share prices.

Gold-Linked CFDs

CFDs (complex instruments) allow you to trade or invest in gold without taking ownership of the asset. You can trade gold spot prices, gold futures, or gold options with CFDs.

Frequently asked questions