How To Invest Money For Beginners In Australia: Explained

Investing your hard-earned cash is a reliable way to build wealth over time. However, it might be challenging, especially if you are a first-time investor. With several investment options available, one must understand each to find the right one.

To simplify investing for beginners in Australia, we have listed some general investment options based on style, budget, and risk tolerance for educational purposes. You will learn about the most popular ways Australians can invest their money.

Many people in Australia buy equities such as shares via an online broker. If you still need a trading account to purchase shares, consider eToro, used by many investors in Australia and worldwide. You can create an eToro trading account HERE.

(eToro Service ARSN 637 489 466 promoted by eToro AUS Capital Limited ACN 612 791 803 AFSL 491139. Capital at risk. Other fees apply. See PDS and TMD)

eToro offers extensive trading features, social trading tools, and copy trading to imitate the trades of other famous traders. Buy Australian & international shares with unlimited commission-free trades. (No brokerage). Other fees may apply.

1. Why Is It Essential To Invest?

There are two prime reasons why people should invest their money:

• To benefit from the power of compounding

• To beat inflation

When earning a higher interest rate on your money than the general inflation, you can retain the value of your money. Moreover, long-term investment gives the benefit of price appreciation. By reinvesting the savings, you can build wealth over time. 

The stable economy and plethora of growth opportunities make Australia great for investment.

2. What Things Should You Consider Before Investing?

Before you dive into the world of investment, there are a few things you need to understand to ensure your finances stay in good shape:

Clear Your Debts

It is not wise to start investing while you are accruing debt elsewhere. Also, it may take a couple of years before you start getting returns on your money.

So, the first step is to clear your high-interest credit card debts, unpaid bills, loan repayments, or other types of debts before you begin investing. If you have taken out large loans, you can use your savings to repay the debt sooner.

Build A Contingency Fund

An emergency fund is necessary to save you from sudden expenses such as unexpected travel, medical bills, auto repairs etc. It offers financial safety to you or your family and avoids the need to borrow money from anywhere.

You should save six months of your monthly expenses as an emergency fund. Start investing when you are debt-free and have an adequate emergency fund. 

Your Investing Style

The next thing that you need to consider before investing money is to identify what type of investing interests you - active investing and passive investing. Both investing styles are profitable if you have a long-term investment horizon.

Active investing is building and maintaining your investment by regularly researching different investment vehicles.

To be an active investor, you need adequate time, proper knowledge and the desire to manage and grow your investments. Forex: buying and selling stocks via an online broker.

On the contrary, in passive investing, you invest in investment vehicles managed by agencies or experienced financial advisors. They will do all the leg work for you to ensure moderate returns on the investment.

A great example of passive investing is mutual funds, which bring simplicity, stability, convenience, low risk, low stress, tax benefits and moderate returns.

Prepare A Realistic Budget

Before investing, ensure you are financially prepared to invest frequently over time. Start by identifying how much money you can afford to invest regularly after deducting your everyday bills and expenses.

Make sure you don't include your emergency funds while planning your budget. It is because almost every investment option carries some risk. You should never be forced to sell your investments to meet a crisis.

Your Risk Appetite

Ask yourself whether you are comfortable taking risks. If yes, figure out how many financial risks you are willing to take. Generally, low-risk investments like fixed deposits and bonds do not offer higher returns and vice versa.

So, the key is to strike a balance between capitalizing on the returns on your investment and finding a comfortable risk level.

Have An Investment Plan

Consider your existing financial situation, investment timeline, risk tolerance and financial goals for the future to determine optimal asset allocation.

3. What Are Some Popular Ways To Invest In Australia?

Here is a range of general investment vehicles you could use for investing:
 

Equities (Stocks/Shares)

Equity investment has good potential and a history of providing high returns.

If you don't have a trading account to buy shares yet, consider eToro, used by many investors in Australia and worldwide. You can create an eToro trading account HERE.

(eToro Service ARSN 637 489 466 promoted by eToro AUS Capital Limited ACN 612 791 803 AFSL 491139. Capital at risk. Other fees apply. See PDS and TMD)

Buy Australian & international shares with unlimited commission-free trades. (No brokerage). Other fees apply.

eToro offers extensive trading features, social trading tools, and copy trading to imitate the trades of other famous traders. Social or copy trading is perfect for beginners, and advanced investors learn the strategies of other traders.

The highly volatile nature of stocks makes them a risky asset class where you can expect substantial gains or losses in your investment value.

If you choose this option, you must be very careful of the stocks you pick for investment. Analyzing the company's fundamentals and looking at its past performance, future demand, and growth potential can help you decide on the right shares for your investment.

The minimum investment you need in the equities asset class is less than a hundred dollars.

Forex

Young Aussies also have the option to trade on the foreign exchange market (FX). It is a decentralised and liquid financial market where you can trade global currencies 24/7.

This form of trading involves betting on one currency's value against another. Forex traders make profits by buying a currency at a low price and selling it at a higher price.

However, before investing in foreign markets, understand the working of the market and the associated processes. Taking Forex training workshops or professional courses can help you understand the intricacies involved in Forex trading.

You can also trade Forex with the trading platform eToro and take advantage of its copy trading feature to imitate the trades of other famous traders. You can create an eToro trading account HERE.

eToro AUS Capital Ltd ACN 612 791 803 AFSL 491139. OTC Derivatives are speculative and leveraged. Not suitable for all investors. Capital at risk. See PDS and TMD

Index Funds

In this type of investment, investors park their money in a large shared pool.

The investment manager/ fund manager will use these funds to invest in various assets, such as high-value stocks. The returns depend on the asset value and the size of the investment.

Each Index fund has a minimum investment requirement that ranges from $1000 to $5000.

Exchange-Traded Funds (ETFs)

ETFs are a combination of index funds and equities. Investors can buy units in an ETF on the stock exchange and sell them anytime. Compared to an Index fund, ETFs are relatively fast, more flexible and less expensive.

However, you will pay a commission when trading ETF shares with the broker/ fund manager. The minimum amount you need to invest in ETFs is $50.

If you still need to get a trading account to buy ETFs, consider eToro, used by many investors in Australia and worldwide. You can create an eToro trading account HERE.

eToro AUS Capital Ltd ACN 612 791 803 AFSL 491139. OTC Derivatives are speculative and leveraged. Not suitable for all investors. Capital at risk. See PDS and TMD

Cryptocurrencies (Crypto)

You can also explore Cryptocurrencies such as Bitcoin, Ethereum, Dash, Litecoin, Monero and Ripple for investment. Be aware that investing in this currency is subjected to drastic price fluctuations.

As it is unregulated and not backed by the government, you need to be cautious when choosing this risky option for investment. 

To start with cryptocurrency, you must create an account with a trading platform. One of the popular crypto exchanges that lets you invest in digital currency is eToro. You can create an eToro trading account HERE. (Crypto assets are unregulated & highly speculative. No consumer protection. Capital at risk.)

eToro is a leading stock broker charging zero brokerage for stock trading (Other fees apply). The trading platform offers extensive trading features, social trading tools, and copy trading to imitate the trades of other famous traders.

You can buy cryptocurrency units in fractions as a minimum investment.

Term Deposits

Term deposits are long-term investment instruments where you park your money for an agreed period and earn a higher interest rate.

It is ideal for those who prefer guaranteed returns over stock market fluctuations and have long-term investment goals for their money.

The only downside of term deposits is that your money gets locked in for a long term, and you can not withdraw it to meet your immediate needs.

When opening a term deposit, the bank will advise you on how much interest you will earn and the return you can make from your investment.

You can open a term deposit through a credit union, building society or bank. The minimum investment to open a term deposit is $5000. However, a few lenders offer the facility to invest for as low as $1000.

Superannuation

If you are an employee in a company, a minimum of 10% of your gross salary automatically goes into the super fund. You get this money with interest when you retire. It is also a great way to build your retirement wealth.

If you have worked for more than one employer, you could have multiple superannuation accounts in your name.

You can also make regular contributions to the super fund to save more for your retirement. It will help reduce your annual taxable income.

The Australian Retirement Trust, Aware, Amp Bank, LGIA super, Spirit Super and VIC Super are some of the best places to invest in superannuation. 

Commodities

Commodity investments are another great way to create long-term wealth, especially when investing in high-demand and growth potential commodities.

The value of commodities fluctuates based on global supply and demand. The ASX offers the facility to invest in four commodity types: metals, energy, livestock and agricultural products.

To start with commodity trading, you must have an account with a trading platform. eToro is one of many popular trading platforms that allows commodity trading. You can create an eToro trading account HERE.

eToro AUS Capital Ltd ACN 612 791 803 AFSL 491139. OTC Derivatives are speculative and leveraged. Not suitable for all investors. Capital at risk. See PDS and TMD

Gold

Gold is a popular investment option for many investors.

They prefer to invest in this precious metal to protect their wealth and hedge against inflation. Due to being unaffected by the factors that impact other investment options, it can be a safer and more stable way to invest.

However, based on the last 10-year returns, gold has provided low returns to its investors. Besides physical gold, you can also invest in gold via gold ETFs, certificates, gold mining shares, and futures contracts. You can read our blog here on how to buy gold in Australia.

ABC bullion and Perth Mint are gold depositories where you can start your gold investment from just $50 per month.

Savings Account

A saving account is a great investment option providing maximum liquidity and can easily convert to cash. However, it yields the lowest returns. 

The average interest rate is 2.2% in gross returns per annum over ten years.

Some banks require a minimum deposit to get a high-interest rate.

Fixed Income

Fixed Income assets include corporate and government bonds that are comparatively stable and offer 5.02% returns per annum on average.

When buying a government bond, you lend money to the government, which is paid back in regular interest instalments throughout the investment duration.

Being a defensive asset, having them as part of your investment portfolio helps you counterbalance any losses you may incur from the share market.

The classification of government bonds:

• Exchange-traded Treasury Bonds that give you fixed interest payments

• Exchange-traded Treasury Indexed Bonds pay you interest based on inflation.  

The minimum investment required by the Australian government is 1 unit with a face value of $100.

On the other hand, corporate bonds carry higher risks than their counterparts because no payment is payable if the company closes. You can buy corporate bonds on the ASX or through a public offer.

Real-Estate

Property investments have given average returns of 12.91% p.a. over ten years.

This investment type can be expensive and has its ups and downs. Investors need a lot of surplus capital to consider investing in the Australian real estate market.

Finding the high-growth area and the right time to invest when the property price is within your borrowing capacity is the key to generating good returns from this investment. There is always the risk involved that you are overpaying and losing money, and it might take a long time to generate some return.

Also, property prices might decrease depending on the area where you buy, and you might lose money if you sell.
 

Sme popular places for property investment in Australia are:

• Belmont, Victoria

• Wellard, Western Australia

• Miranda, New South Wales

• East Ipswich, Queensland

• Greenacres, South Australia

You may consult the following professionals to get guidance on how to invest money in real estate:

• Property Manager

• Buyer's agent

• Financial planner

• Accountant

• Mortgage broker

• Conveyancer

4. How Much Should You Invest?

You should only invest money that you don't require for at least three years from now.

It is the perfect timeframe to hold your investment before seeing decent gains in a safe instrument. 

Consider your regular expenses, living expenses, existing debts, and short-term financial commitments before coming up with the investment amount.

Those interested in the Australian stock market can start investing with as little as $50, and many 'micro-investing' platforms do not have any minimum investment requirements.

In other words, you can save minimal amounts periodically or buy a fraction of the share through a trading platform..

5. How To Invest Money For Students?

There is no age to start investing. The sooner you start, the greater your profits may be. However, there is no guarantee of profit. When investing, you can lose all of your money. It always carries risk.

If you are young and enthusiastic, watch out for the following investment options:
 

• Compound savings accounts

• Term deposits

• Equities (Stocks/Shares)

• Managed/index funds 

• Electronic Traded Funds (ETF's)

• Cryptocurrencies

• P2P lending

• Property

• Superannuation

• Commodity investments, such as gold, silver, copper, iron, nickel, lead etc.

• Precious metals (platinum, gold, silver, palladium, etc.)

6. What Is A Popular Way To Invest $10k In Australia?

A popular way to invest money with a 10K budget is via exchange-traded funds (ETFs) or managed funds. 

Your money gets pooled with other investors' funds to get a holding in the asset portfolio.

7. How Could You Invest 20k In Australia? 

There are plenty of options to invest in Australia.

If you are an aggressive investor looking for a moderate risk-high yield option, then stocks could be your best bet. However, keep in mind that investing comes with risk. There is no guarantee that you will make a profit. You could also lose all your money.

Suppose you are a risk-averse investor who expects decent returns. In that case, ASX Exchange-traded treasury indices or bonds will be appropriate as they offer low-risk and moderate yield on your investment.

However, when safety is your investment criteria, choose the least-risky options, such as high-yield savings accounts, fixed deposits, and gold investments.

These options still come with risks but tend to be less risky. Always consult a professional financial advisor before making any investment decisions.

8. Frequently Asked Questions (FAQs)

What Are Some Common Investment Options in Australia?

The following are some popular investment options in Australia:

1. Direct Shares

Investing in shares facilitates wealth accumulation through the growth of stock prices, dividends, or a combination of both.

Optimising your investment portfolio by diversifying across various asset types aligned with your financial objectives is a popular option, given the increased short-term risks.

2. Managed Funds

Managed funds employ active or passive investment strategies to grow earnings by investing in different assets like bonds, shares, or property.

3. Passive Funds or Exchange-Traded Funds (ETFs)

This could be ideal if you are looking for an affordable investment option and aren’t proficient in researching stocks.

ETFs replicate the performance of an index, such as the ASX 200. They provide direct access to varying assets, including Australian shares, global shares, fixed income assets like bonds, crude oil, semiconductors, or precious metals.

4. Active Funds

Relatively expensive than passive funds, actively managed investments aim to outperform an index such as the ASX 200.

Like in ETFs, the fund manager invests in different assets, such as shares, property, etc., in various sectors and geographies.

5. P2P lending

Engaging in a peer-to-peer lending setup allows you to act as a lender and generate interest from your funds.

As there's no assurance of loan repayment, investors find it beneficial to pick borrowers to whom they're comfortable lending selectively.

The minimum investment amount in this scheme depends on the business that facilitates the loan.

For example, it is $10 in the case of the Plenti Lending Platform. Other platforms include Harmoney, Now Finance, and SocietyOne.

6. Listed Investment Companies (LICs)

LICs are like managed funds incorporated as companies and listed on the ASX.

Being a 'closed-ended' investment, a fixed number of share units are available. LICs work by pooling money from investors to purchase a range of assets, mostly in shares in other companies.

The investment amount in the LIC doesn’t change with the entry and exit of investors in the fund.

It implies the investment manager focuses on investment management rather than trying for fund-raising if a shareholder exits the investment or makes extra investments if more investors join the fund.

7. Annuities

Annuities are a significant investment, particularly for those planning for retirement. It provides an assured income irrespective of financial market conditions. You can invest in it through your regular savings or super.

Annuities make regular payments over a fixed term or for the rest of your life as a lifetime annuity. Your payments depend on your investment amount and actuarial calculations considering demographic or economic trends.

How Could One Potentially Invest AUD 1,000?

You can find below some popular options to invest in:

• Invest in The ASX 200 Index: The ASX 200 index tracks the 200 largest companies in Australia. Investing in the index is an excellent way to diversify your funds without hand-picking your stocks.

• Invest in a Retirement Plan: Investing in a traditional 401(k) and IRA can help you save money for your golden years. The money you invest will grow tax-free until you withdraw it in retirement.

• Invest in Shares of Stocks: Whether you buy a whole stock or fractional shares in different market sectors and industries, it can offer massive long-term potential for AUD 1,000. No-fee brokers are the best way to start without requiring you to pay trading commissions on your capital.

• Use a Robo-Advisor: Robo-advisors automate the investing process based on your time horizon and risk tolerance and create an investment portfolio that best fits your investment amount. Some also rebalance your portfolio or use tax-loss harvesting to maximize your returns.

• Save in a Certificate of Deposit: Certificates of Deposits are another excellent investment option, especially during the government's interest rate hiking campaign. Locking your AUD 1,000 into a short-term CD could yield good returns; however, breaking it in between could lead to a loss of interest.

• Invest in a High-Yield Savings Account: Suppose you are looking for an investment that grows your money while providing convenient access to your money. In that case, you can opt for a high-yield savings account. Such accounts have higher interest rates and allow six penalty-free withdrawals each month or more.

Stocks, index funds, and ETFs may have short-term market risks, so you must select them wisely and for the long run. More importantly, consistently setting money aside rather than "hitting it big" on one asset is more likely to build wealth.

How To Find The Right Combination of Assets For Your Portfolio?

When designing an investment portfolio, the following considerations will help you pick suitable asset classes:

• Your age. Younger investors can take on more risks as they have ample time to ride out market falls.

• Your risk tolerance. If you are a conservative investor, consider investing in lower-risk asset classes and vice versa.

• Your investment goal (growth or income) – Analyse your purpose of investing. It can be earning a steady income stream now or making a lump sum after a few years.

How Long Does It Take To Build Wealth?

The time you need to build wealth can be different for everyone.

People who make sensible investing decisions tend to realise their goals faster.

However, a lack of investment knowledge, absence of investment strategies, poor financial advice, etc., can delay your goal of building a nest egg.

Although there is no specified path, the ideal way to build wealth quickly is to have an investment strategy over the long term that fits your financial situation, goals, and risk tolerance.

How Do You Build Wealth Quickly?

Success is usually the outcome of several years, sometimes decades, of hard work, patience, and following the right and justified approach. Only then you will be successful.

Resist the urge to begin investing before getting into a solid financial position. You must pay your debts first, earn a steady income, and save some money in the bank before taking the next step.

Here we have a few basic investment principles that, when you follow, can improve your chance of continued success with nominal set-backs such as:

• Portfolio diversification from the beginning

• Consulting a financial advisor who keeps your interests over theirs.'

• Taking benefit of compounding interest in long-term investments

• Becoming a long-term player 

• Staying in favour of accumulating slow and steady returns rather than falling into the traps of get-rich-quick schemes.

Do You Need a Six-Figure Job or Family Money To Become a Millionaire?

You could earn a million dollars by retirement with patience, meticulous planning, and smart savings.
 

Here are a few wealth-building tips that could help you retire early (no guarantee):

Tip 1: Begin saving early to take advantage of the power of compounding.

Tip 2: Avoid debt and unnecessary spending out of your weekly budget

Tip 3: Save at least 20% of your monthly income toward savings

Tip 4: Try increasing your earnings. You may consider the following available options:

• Ask for a salary increment (if it is due).

• Work extra hours

• Get a second job

• Get trained to improve your earnings potential

Earning that extra money each year can help you attain your financial goals—especially “becoming a millionaire."

Tip 5: Live a minimalistic lifestyle. Say, saving that extra money is better if you get a pay raise instead of moving into a bigger, more comfortable apartment. Aiming to live a life that meets your essential requirements and not desires can help you achieve your financial goals faster.

Tip 6: Investing is not a one-time task. You must regularly track your investments to align with your financial goals. Having a qualified financial advisor by your side can help you select investments, set up a budget, and form plans to achieve your goals.

10. Conclusion

Deciding on the right investment option can take time and effort. Research and organising your finances are necessary before investing. 

Knowing your goals, investment timeframe, risk appetite and comparing available investment options will help you grow your money effectively.

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk

We hope this guide helped you better understand the different investment vehicles available in Australia. Happy Investing!

If you don't have a share trading account to buy shares yet, consider eToro, used by many investors in Australia and worldwide. You can create an eToro trading account HERE.

(eToro Service ARSN 637 489 466 promoted by eToro AUS Capital Limited ACN 612 791 803 AFSL 491139. Capital at risk. Other fees apply. See PDS and TMD)

Buy Australian & international shares with unlimited commission-free trades. (No brokerage). Other fees apply.

Useful Links to Explore:

• How To Become A Commodity Trader In Australia?
• How To Become A Day Trader In Australia?
• How To Become A Forex Trader In Australia?
• How To Buy Cryptocurrency In Australia?
• How To Buy Shares Online in Australia?
• How To Buy Gold In Australia?
• How To Buy Index Funds And ETFs In Australia?
• The Benefits of a Professional Year Program (PYP)
• A Complete Guide to Study in Australia
• Types of Education in Australia
• What to Study in Australia?