Investors are always on the look out of great investment avenues. Those living in Australia need to align their investments as per present market trends. The four main asset classes are the most preferred over time by one should look into how they are performing presently.
Get your money to grow and generate returns in the four asset classes – Equities, Fixed Income, Cash and Property. The performance has varied significantly although investments with greater level of risk perform better over long term, compared to investments with low levels of risk. Remember, past performance is no guarantee of performance in the future.
#1. Property Investment
According to ASX/Russell Investments 2017 reports about long-term investing, Australian home investment has given 8.1% return per annum from 2006-2016.
The market had stagnated after that, but now investors are keen to put their money in property although it is expensive and not feasible for many. Real estate constitutes the “great Australian dream” and hence the market has boomed considerably in urban cities especially Sydney.
For example Lendi did a survey where it asked 800 Australians what they would do if they find one million dollars and a large proportion of the respondents (20.7%) said they would either buy or renovate their home. This reveals how much Australians prefer to have their own home.
According to CoreLogic RP Data on home value, in 2016, Sydney house prices grew 10% in a year. The slow increase in prices was given a boost last year but the market has evened out in recent times. Of course, one should invest in the right property at the right time in the right value, by considering the ups and downs of the market.
#2. Fixed income e.g. bonds
Fixed income assets, inclusive of government and corporate bonds give investors stable and reliable return. When purchasing such bonds, you are actually lending money to the government, who repays under a specific rate of interest in regular instalments throughout the length of a specific period for the bond. Australian bonds averaged about 6.1% return every year since a decade, according to the ASX report.
Although fixed income assets are not considered with great importance by some investors, it is important for Australians to have a diverse investment portfolio to offset any losses from share market and can be used as ‘defensive’ assets.
Buying equities especially publicly-listed shares could provide investors with high returns, but can also result in significant losses. Equities are hence classified as risky asset class. Shares are vulnerable to sudden fluctuations and result in huge gains and losses.
Australian shares have averaged a 4.3% return on an annual basis based on ASX report. This makes shares as second-lowest-returning Australian asset class out of the four. Don’t forget this period of time encompassed the GFC though.
In the 2015 ASX Long-term Investing report, Australian shares were actually the highest performing asset over 10 years with an average return of 7.1% per annum. This number fell to 4.3% in this year’s report because of weak returns in 2015 and the exclusion of 2005’s strong returns of 22.5%.
But if one has an eye for the market, you could get favorable results too. Past performance is not a great indicator of future performance hence one should be wary of making share selections without thorough information.
#4. Cash e.g. savings accounts
Cash assets, including savings accounts and term deposits, offer liquidity for people and can be readily availed when required. Cash assets offer money safely though generating lowest returns. Cash averaged at 2.8% return every year for a decade in Australia, according to ASX report.
Putting about $10,000 of savings in emergency fund gives breathing space to people to combat life’s ups and downs. This money could help especially when you go out of a job or have emergencies with respect to home repairs etc. Your emergency fund or savings fund should accommodate money for at least three months to attend to household bills and expenses as a starting point.
Some words of advice
For investments, you could consider exchange traded or index fund. Exchange traded funds (ETFs) can offer low-cost alternative to gain access to shares or property without huge upfront investment or choosing individual assets. The investment has higher risk ration than savings account but can deliver higher returns over time. Index funds on the other hand are passively managed funds that invest in a portfolio of assets that follow ASX S&P200 index funds. An index fund generates returns, and offers inexpensive way to gain exposure to a number of good assets. Also it is important to boost your employers’ super contributions thus making it tax-effective and you could reap benefits of compounding returns in due course of time.