Investing $5,000 to $9,999 presents you with multiple options but do you know which ones are best for you?
Putting your money in a bank account offers security, but you can get your money to work for you if you invest suitably. When investing some of your options include shares, futures and trading in foreign exchange and each comes with its own nuances. Learning about various investment alternatives is important because of the different levels of risk involved, and you may also have to deal with aspects like commissions, fees and minimum amounts.
*Past performance data is for the period ending December 2018.
Disclaimer: Performance, fees and insurance data is based on each fund's default MySuper product. Where the performance, fees and insurance data for the MySuper fund vary according to the member's age, results for individuals between 40-49 years of age have been shown. This article is general advice. You should consider your own personal circumstances before deciding if a superannuation product is right for you. Superannuation is a long term investment and past performance is not indicative of future performance.
What are my options when I want to invest $5,000 - $9,999?
Pay outstanding debt
Chances are you have existing debt in the form of outstanding credit card dues as well as different types of loans. Spending some of your money to pay these off is a good idea, not only because it helps you become debt-free faster, but also because doing this can help you save some money in the form of interest. Fees and charges can apply when you repay some kinds of loan ahead of time.
Contribute to your superannuation
If you, like most others, are saving for your retirement, contributing to your superannuation fund can be a good idea. Your contribution from post-tax income is not subject to tax up to certain limit. If you make contributions from post-tax income and earn less than $50,454 per annum you benefit further because the government matches your donations and this money adds to your super as well.
A managed fund consists of multiple investors who have a investment manager making trades on their behalf. You can benefit through the expertise of the investment manager without having to do groundwork on your own, but you can’t expect guaranteed returns.
Seasoned investors tend to dabble in the share market because it normally offers better returns than bank accounts. By buying a share, you’re essentially getting a unit of the company in question. If the company generates profits, you stand to earn dividends, and you can also benefit by increase in share prices.
Options are contracts that let you buy or sell underlying assets at specified prices on specified dates, without actually having ownership. The time period they remain valid for can vary from a few weeks to a few months. Investing in options requires that you learn the tricks-of-the-trade well, failing which you can lose money.
You can benefit by investing in futures through considerable leverage. With $5,000, you can control a futures contract worth around $75,000, but needing access to additional cash if there’s a margin call can be a problem. Besides, the end result can be you losing more money than you’d started off with.
Trading foreign exchange
You can benefit through noticeable leverage by investing in foreign exchange, but you can also suffer significant losses. Learning how this field works in not difficult and you don’t have to invest much when you start.
Term deposits and high interest savings accounts
Anyone looking for guaranteed returns can consider setting money aside in a term deposit or a high interest savings account. While a term deposit requires that you put your money away for a chosen time period, high interest savings accounts offer easier access to funds.
Cash management accounts
A cash management account comes with multiple components such as a savings account, an online trading platform and a super fund. Such accounts let you handle your investment requirements through a single platform.Back to top
How do I compare investment products?
- Minimum amount requirements. If you want to open a term deposit the starting point is usually $500 or $1,000. In the share market, you can buy just one share, and how much you’ll have to spend depends on the share’s value. You can start investing in futures with little money and this is also the case with trading in foreign currency.
- Fees and commissions. If you’re planning to go the shares and futures way expect to pay some kind of brokerage fees. If you’re hoping to pay fixed fees per trade you’re better off looking at online brokers because full service brokers normally charge fees as percentages of all trades and deal with high net-worth clients. High interest savings accounts and term deposits tend not to charge any account keeping fees.
What are the pros and cons to investing in an asset other than a savings account?
- Government guarantee. The Australian Government Guarantee Scheme provides security to deposits of up to $250,000 per person per institution, and you can fall back upon this scheme in case your financial institution has trouble in honouring your deposit. To make the most of this scheme, you can consider banking with multiple institutions when cumulative balances in any one institution crosses the $250,000 mark.
- Guaranteed returns. Putting your money in a savings account is a safe bet because you’ll continue to earn a standard variable rate for as long as you keep money in the account. Online banks tend to offer better rates than conventional banks because they benefit through reduced overhead costs. Credit unions also offer competitive interest rates because they don’t have to share profits with shareholders. If you choose the right account and play your cards right you can even earn bonus interest.
- Cater to different needs. Features that savings accounts come with can vary from one offering to the next, allowing you to choose an account as per your needs. If you want 24/7 access to money in your account, pick one that provides free access to online and phone banking. If you want to use money in your account to pay bills, you can find an account that provides BPAY access.
- Inadequate returns. Savings accounts in Australia tend to offer interest rates in between 2% and 3.5%. These rates are lower than what you stand to make through other means of investments.
What are the risks?
- Limited information. A little research can go a long way in the world of investments even if you’re putting your money is a seemingly simple asset like a term deposit. This is because not all financial institutions offer the same interest rate. When dealing with more complicated assets like shares and futures, learning the intricacies becomes all the more important.
- Fees. When you invest your money, you’ll use the services of a financial institution or a broker, or both. Before you begin any such relationship, take time you find out how much you may have to pay as fees in different situations.
Is there anything else I should consider?
- Risk. In most cases, there is a direct link between the risk your investments face and the returns they generate. If you’re looking at greater potential returns, it is only natural that you should prepare to take higher levels of risk. However, risk perception can vary and does not have a necessary bearing on statistical analysis.
- Risk profiling. Your willingness to take risk coupled with how it can affect your judgement translates into your risk profile. By going through the process of risk profiling you address aspects like risk capacity, risk required and risk tolerance, and this helps you arrive at optimal investment risks.
- Financial goals. Setting financial goals is crucial but you should be able to measure how you’re doing as and when required. When planning for retirement, calculate just how money you’ll require when time comes.