Our pick for buying stocks: Superhero
- $0 brokerage fee for US stock trading
- $0 brokerage for all ETF purchases
- Low $5 flat rate for ASX shares
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5 best ways to invest money in Australia in 2022
From stocks and cryptocurrency to bonds and index funds, these are the 5 best ways to make your money grow.
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It has been a volatile 2 years for investors who have dealt with COVID-19, rapidly rising inflation, fears of a recession and geopolitical tensions which might have you wondering "what should I do with my money?".
Unfortunately, we live in a time of record low interest rates and high inflation meaning doing nothing with your money will actually see you go backwards.
As such, we have compared multiple investment options and chose the best 5 ways to invest your money based on rate of return, liquidity, time horizon and how much knowledge or technical skills you'll need to have this investment strategy.
Find the best way to invest money in Australia
1. Best investment for those who want to control their portfolio: Shares
Shares have the greatest variety of trading options because you can choose from emerging businesses you think will explode, companies that pay dividends, established businesses in industries that are resistant to downturns and more. It's easy and often free to open a stock trading account and start trading.
- Where to buy: Online brokers
- Risk level: Medium to high – varies greatly based on what you own
- Liquidity: High
- Minimum: No investment minimums – pending your broker
- Fees: Starting from $0 depending on the broker
2. Best investment for those who want to be hands-off: Robo-advisors
Robo-advisors trade automatically based on an algorithm and invest your funds on your behalf. All you have to do is set up guidelines, such as your risk tolerance and preferred investment types, then the algorithm will allocate your funds and rebalance your portfolio accordingly. This is great for people who don't want to dedicate the time and energy to building and maintaining their own portfolio.
- Where to open: Brokers and financial companies like Six Parks and Stockspot
- Risk level: Low, medium or high – depending on the strategy you choose
- Liquidity: High
- Minimum: Starting from $0 – depending on the robo-advisor
- Fees: From $0 to 1% – depending on the robo-advisor
3. Best investment for conservative investors: Index funds
Index funds offer one of the best risk/reward ratios for long-term investing, meaning they offer decent rewards for relatively low risk. That's because major indices have consistently gone up in the past 90 years. For example, the S&P 500 has averaged a 10% annual return during this time, while in Australia the ASX 200 has a 30-year average of 9.4%. If you invested $10,000 into the ASX 200 30 years ago, you would have $146,000 by 2022 and that is after superannuation being introduced, GST commencing, the dot.com bust, the global financial crisis and COVID-19 lockdowns.
- Where to buy: Brokers
- Risk level: Low, medium – depends on which funds you invest in
- Liquidity: High
- Minimum: No investment minimums
- Fees: Annual fee of about 1% depending on the fund
Our pick for buying index funds: eToro
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4. Best investment for risk takers: Cryptocurrencies
Being a relatively new investment option among mainstream investors and institutions, cryptocurrencies are a high-risk, high-reward investment. What’s more, there are always new coins coming out or older ones getting the spotlight every now and then. Because of that, the rate of return could be way higher than investing in stocks. But since cryptos aren’t currently regulated, you could lose your entire investment.
- Where to buy: Brokers and crypto exchanges
- Risk level: Very High
- Liquidity: High
- Minimum: No investment minimums
- Fees: Starting from 0% depending on the broker and the exchange
Our pick for buying cryptocurrencies: Swyftx
- Trade crypto, stocks and ETFs
- 1.50–2.00% operations fee per crypto transaction
- No account fee
5. Best investment for those close to retirement: Government bonds
Investing in Australian government bonds is one of the safest investments you can make but you'll get a return that matches the risk. This is because the chances of the Australian government not being about to pay its bills are incredibly low, especially any debt in its own currency. As such most investors see it as safer than the share market or ETFs. Investors who are trying to preserve their assets, such as those who are closer to retirement are most likely to trade in the bond market.
- Where to buy: Brokers and directly from the government via broker
- Risk level: Low
- Liquidity: High
- Minimum: No investment minimums with bond ETFs, but a $100 minimum investment if you buy bonds directly
- Fees: From $0 to 0.1% – depending whether you buy bond ETFs or bonds directly
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Our pick for buying government bonds: Bell Direct
Get $300 free brokerage until 30 June when you move to Bell Direct. T&Cs apply.
- Extensive trading capabilities
- Trade on Australia and global exchanges
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Bonus: Best investment for inflation
Believe it or not, inflation can be a good time to get in on certain market sectors. Consumer staples, for instance, are typically resistant to volatile periods. This is because regardless of the price, consumers need to buy these items. As such, businesses will simply pass on rising input costs to their customers.
Not only are brands with pricing power usually strong performers during a period of high inflation, energy and commodities are typically the big winners. One of the major drivers of inflation can be rising costs of commodities. It goes without saying rising commodity prices are good for the commodity sector.
5 steps to start investing
Now that you have an idea of the best ways to invest your money, here’s how to start:
1. Identify your goals, time frame and risk tolerance
- Time horizon: Your time frame should dictate your risk. The sooner you'll need the funds, the more liquid you want to keep them. This way, a dip in the market (assuming it recovers, but we don't know how long it will take) won't destroy the retirement fund you'll need in a year.
- If you’re nearing retirement, typically a low-risk investment, such as bonds, is the way to go. You would earn less, but the risk is minimal compared to stocks or crypto.
- If you’re younger, you have a long way to go before retirement so you might want to consider setting aside some funds for riskier investment options (like more speculative stocks or crypto).
- Risk: Be honest with yourself about how much risk you can reasonably tolerate. If it is going to be impossible for you to watch your portfolio drop in a downturn, you'll want to use a robo-advisor (which is immune to emotional investing) or invest in lower-volatility assets like bonds. Remember, an easy way to hedge risk is through diversification – investing in different assets so that your entire portfolio doesn't depend on the success of one investment.
- Goals: Do you want to be highly involved in picking stocks? Are there some industries you aren't comfortable investing in? Is your goal retirement or do you have other shorter-term goals? The answers to these questions, as well as those above, will dictate the best way to invest your money.
2. Decide how much help you need
Investors who are just starting out or those who never had the chance to manage their portfolio may consider using a robo-advisor or consulting an expert. Investors who want to try their luck can always start by themselves, as many platforms have research tools and low barriers to entry. Make sure you use money that won’t impact your life if you lose it.
3. Choose your account type
Depending on your goals and investment time frame, you can choose several types of accounts:
- Self managed super fund (SMSF). Superannuation is compulsory in Australia, but for those who want to manage their own retirement they can select a SMSF. This comes with the perk of being able to choose your own investment but comes with drawbacks including costs associated with the account, legal and compliance obligations and that your money will no longer be professionally managed. In Australia, regardless of what type of super fund you choose your employer should be adding 10% to this account, which needs to be paid out every quarter. But for those looking to accelerate their wealth they can take advantage of the tax benefits with superannuation. Earnings in super are taxed at 15%, which is likely less than your marginal tax rate.
- Individual accounts. This is the most common type of account you can open with any broker and start investing your money as soon as your funds land. This account has no limits to depositing and withdrawing but gains are taxable.
4. Open your investment account
Depending on who manages your account, there are 2 types of investments accounts to choose from:
- Standard account with an online broker. This is the most common option for those who want to place their own trades and choose their investments. You will need to open a stock trading account, which is easy and usually free.
- Robo-advisor. This option is for those who want an algorithm to manage their account based on parameters set by the investor.
5. Deposit and invest
Once you open and fund your account, it’s time to put your money to work. Make sure to choose the best way to invest, depending on your financial situation and goals.
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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
Bottom line
The best way to invest money in Australia depends on factors like your financial goals, risk tolerance, level of involvement and time frame. There is no single best way to invest your money, but these 5 investment options (stocks, robo-advisors, index funds, cryptocurrency and bonds) are good places to start when you are deciding how to invest money in Australia.
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