Investing money is an effective way to make a fortune that most of the prominent business personalities and entrepreneurs choose. Unfortunately, most people do not understand much about investing. As per the ASX 2017 investor study, about 40% of adult Australians neither invest other than superannuation funds nor feel confident about investing. The truth is that if you start investing at a very early age, even if it’s a minimal amount of money, it will do wonders in your later life. Here in this article, we discuss the different types of investments and subsequent benefits.
Why do people usually invest?
In a word, it is because of compounding. Let us take an example. You start investing about $1000 each fortnight when you are 20 years of age. You can get an average return of 7% per annum for the next 20 years. That will be a lump sum, and along with it, you will have over a million dollars made from your income. So, you can imagine how much you will have in your hand. That is what is known as compounding.
Another reason is inflation. Right now, there is an economic depression witnessed globally, primarily because of the pandemic situation. Prices are found rising everywhere, from the local coffee corner to the supermarket. And the only way you can survive in this situation is by earning money at a rate higher than inflation. Accountant Perth can give you a proper explanation about it.
What should you do before investing?
Don’t just get indulged in the world of investing without much pre-planning. Before starting, make sure that you have healthy financial strength. You must check whether you have any customer debts like credit cards or personal loans. If you’re still ridden with debts, you may start with a tiny amount.
How much do you need for investment?
Most people carry this misconception that one has to be very rich to invest. What’s true is that you only need a decent amount of cash to get started. In the Australian share market, the minimum amount you need to have to invest is $500. The reason is that the Australian Securities Exchange or ASX has to ensure the coverage of administration costs like brokerage fees at the time of buying and selling shares. But recently, several micro-investing platforms have come to the stage, which will even allow you to invest in spare change.
Where can you invest money?
There are numerous options to invest money in Australia – ASX 200 ETFs, CDOs, CFDs, REITs, and many more. It is recommendable to appoint a professional financial advisor, but that does cost a considerable amount of money. An advisor simplifies all the investment options and determines the suitable one for you. Here we discuss several common ways you can invest money to get an understanding.
Investing in shares
Shares are also known as stocks, securities, and equities, which are the most common ways to invest money. Most people invest in shares, which constitute a massive part of their investment portfolios. It appears to be pretty alarming for beginners because it requires a little more involvement relative to other investment options. But the advantage is that you can have more direct control over your investment and pick the shares according to your choice.
When you invest in shares, you can become the part-owner of a business. Investing in shares on the ASX makes you able to buy the part ownership of the company listed under ASX. Depending on the company’s performance, your profit will fluctuate. When the company performs well, you can benefit from share price growth and get a paid income as dividends. But when the company underperforms, you may not get these benefits.
Sizeable long-term returns are indeed generated in individual shares, but that will strictly depend on your choice of company. Ups and downs in a business are a prevalent scenario, leading to a fall in share values. So, we recommend that you invest in various companies, not just in a single company.
If you appoint a professional to take all the critical investment decisions, the most suitable option for you is a managed fund. In a managed fund, the money of all the investors is pooled together. An investment manager’s job is to get you the best return they can make by buying and selling shares or other assets on your behalf. Managers usually take some unique strategies like choosing high-risk shares or low-risk government bonds. If you are a beginner, you may consider opening a managed fund as a skilled and professional investment manager will do the job for you.
An exchange-traded fund or ETF is also a pooled investment fund, just like a managed fund. ETF can be purchased and sold like shares on ASX. If you want to get investment returns similar to any share index or an underlying asset like gold price or currency, an ETF is the simplest and low-cost way. However, there do occur complexities in some ETFs relative to others, and they are associated with many risks. ETFs generally act similarly to that of an index (such as ASX 200) or an asset price. There is one difference between ETF and managed funds, and that is, any investment manager does not manage ETFs; instead, they rely on an algorithm.
One information you may find helpful here is that some micro-investing applications are now available. You can begin an investment portfolio of ETFs with a bit of money.
This is the only investment option, where you can enjoy the benefits only when you reach an old age of retirement. But, the more money you will invest now, the more you can get after retirement. According to current regulations, you can invest up to $25000 a year at a before-tax rate of 15%, while that for after-tax is $100000 a year. For a consultation, you should go for any SMSF accountant Perth.
For more details and queries, specifically about micro-investment, always get in touch with Accountant Perth. You can get numerous options and professional services from them.