With house prices at an all-time high, some people are considering alternative options. While many are still busy saving for a deposit for their property, others are turning to investing as a way to get ahead. The key to creating wealth is building an asset base. Here, we list some of the common ways people are investing in the current environment.
While putting money into the bank doesn’t sound as glamorous as buying a house, it’s usually where most people start. Earning a good rate of return on your money is important, but it’s not as important as being able to save that money in the first place. For example, if you can earn an extra 1 per cent on $10,000 of savings, that’s an extra $100 for the year. Instead, focus on trying to find that $100 a week in your budget and you’ll be $5,200 ahead by the end of the year.
Why this works: Cash is stable, safe and liquid, giving you flexibility.
The funds management industry has come a long way since the GFC, with more options available to investors at a more reasonable price point. A managed fund is where you pool your money with others and give it to an investment manager to look after. While many people think of shares, a managed fund can have a multitude of different investments such as commercial property, oil, gold, bonds, even start-up capital used for technology. If you do invest into a managed fund, try to add your savings to it regularly to build your capital faster.
Why this works: Managed funds give you access to a diversified set of assets that you most likely can’t afford to buy unless you’ve got more capital. They’re liquid and divisible.
Often forgotten in the mix when considering investments, you can purchase any of the assets mentioned above in a super fund, but use before-tax money to buy them. This gives you more money to buy more investments which, over time, leads to higher returns. Furthermore, you pay less tax on those returns, allowing you to reinvest even more back into the fund.
Why this works: Investing within super provides significant tax benefits, and coupled with smart investment choices, you can build a decent nest egg for the future.
Why not become a landlord yourself? Often referred to as ‘rentvesting’, many people are renting in areas that provide them with the lifestyle they’re after, while buying rental properties in areas where they can afford. This could be an area further away from the city, regional areas or even interstate. It’s important to pick the right area and the right property to ensure you get a reasonable return for your efforts.
Why this works: Borrowing money, or gearing, can significantly increase your returns through multiplying your exposure. However, it also significantly increases the risks.
Brenton Tong, director, Financial Spectrum