Investing is easy once you take the first step.
How many times have you heard someone say they’ll start investing when they have more money, more time or more information? Perhaps you’re one of those people? The good news is that investing is easy once you take the first step.
A good way to get started is to put money aside before you have a chance to spend it. This simple strategy is known as 'paying yourself first'. That way you avoid the trap of having nothing but good intentions left at the end of each month after paying the bills and living your life.
The easiest way to pay yourself first is to set up a direct debit into a high interest savings account each payday. Before long, you'll be ready to make your first investment. The actual amount you need will depend on the investments you choose. In some cases it could be as little as $1000.
While your savings are growing you can start your research. Here's a quick rundown of some of the most common types of investments or asset classes.
Cash investments are low risk investments but the trade-off is relatively low returns.
- Term deposits offer a fixed rate of interest for a fixed term of between for eg: three months and five years. Generally, the longer the term, the higher the interest.
- Cash management trusts generally offer a single rate of interest and the ability to withdraw funds on short notice. You need to fill out an application form because you are buying units in a managed fund that invests in the short-term money market. There may also be a management fee and a minimum balance.
Property can be considered a growth asset because it can offer higher returns than cash or bonds over the long run from a combination of capital growth and rental income. The trade-off is a higher level of risk because property prices may fluctuate over shorter periods.
Property investors have two main options:
- Property such as a house, apartment or commercial building has the advantage of being tangible and you can be a hands-on landlord. The downside is that you may need a substantial deposit and a large loan. Transaction costs are high and you can't just sell off a room when you need the cash.
- Listed property, also called real estate investment trusts (REITs) allows you buy and sell units in a managed fund that invests in a wide range of properties and locations. The units are listed on the stock exchange so they could be easier and cheaper to sell than real property. They typically also distribute income on a regular basis.
When you buy shares, also known as equities, you buy part-ownership in a business that is listed on a stock exchange such as the Australian Securities Exchange (ASX).
Like property, shares are growth assets. They offer the potential for high returns over the long run but with the risk of price fluctuations along the way. The total return from shares can come from a combination of capital gains and dividend income.
You can buy shares in individual companies or exchange-traded funds that invest in a wide range of companies, industry sectors and overseas markets.
There’s plenty to learn about investments and you should seek advice before undertaking any new financial strategy to ensure it meets your personal objectives, financial situation and needs.
This information is current as at 29/05/2015.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.