There comes the point in everyone’s life when they have enough income to consider how they can make it work harder for them.
Investments are a natural step if you want to grow your money more effectively. Of course, every investment comes with risks, but which option offers the best return?
With various assets to choose from, there are also varying levels of risk and success. Remember that when your investments pay out, you must pay taxes on your profits, including crypto.
Defensive: Cash and bonds
Cash investments are an excellent example of a defensive investment. This is a smaller investment to generate income and protect your capital investment. A cash investment includes a high-interest savings account; your return will depend on the account. Generally, you are looking at 3% annual returns on average. It’s a great short-term option, and in terms of risk, there is none.
Bonds are also categorised as defensive investments, and they are low risk. They’re a short-term investment option, and you can expect up to 4% return annually.
Property is what experts refer to as a growth investment. A category that would also encompass shares and crypto. A growth investment is a higher risk than defensive investments, highlighted in their names.
The purpose of a growth investment is to produce income, whether rental income from properties or dividends from shares. These are typically longer-term investments because they are too volatile for short-term investment. They will give you a higher rate of return, but you have to be willing to take a long-term risk.
Growth: Property, shares, and cryptocurrencies
Property can provide an average return of over 6%, but you must be prepared to invest for at least five years. The risk runs from medium to high and will depend on how wise you are with your investment.
For example, investing in a residential area with loads of vacant rental properties is not wise. But purchasing in a low vacancy and desirable area with healthy rental yields will pay you back in kind. Property can provide you with a steady income as well as capital growth.
Shares may be the highest risk of the traditional investment routes and for an average return of just over 6%. Likewise, it’s an investment that requires at least five years to pay out. However, if you invest enough, you can participate in management votes and receive a share of the profits. Shares can also provide income dividends and capital growth.
Crypto is a new investment opportunity and perhaps the highest risk, and it is very complicated to do taxes in Australia. There is a wide range of cryptocurrencies, and you can invest with a broker or through an exchange. Few cryptos are backed by hard assets, which is why it’s risky.
But if you use a local exchange like Coinspot, Swyftx, or Independent Reserve, then you can buy and sell as frequently as you wish. Ultimately, it’s worth as much as someone is willing to pay you. You can hold onto it until the market is favourable.
Which asset is right for you?
Before you make any investments, you need to consider how your preferred method works, what type of return you can expect and how it will generate this, and what type of risk you’re facing.
Beyond that, you need to understand the fees or charges you will incur for purchasing, holding, and selling your investment. Consider how long you have to invest until you can expect a return and your investment’s tax and legal ramifications. You can also use your super as an investment opportunity if your goal is boosting your retirement funds.
Asset performance will vary over time, but the higher-risk options tend to perform better long-term, while the lower risk and lower return are more suitable short-term plays. You can’t use the past performance of any asset to predict future performance.
Determine your risk tolerance level and move forward with what you believe is the right choice for your money. You can make investments yourself or enlist the services of a professional investment manager. They will help you make wise investments and comply with the correct regulations and tax requirements.