How To Invest Money In Australia: A Beginner's Guide

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 great investment options based on your style, budget, and risk tolerance.

The easiest way to invest in Australia is to buy financial assets such as shares with an online broker. If you still need a trading account, we recommend the best broker for Australia and worldwide, eToro - You can create an eToro trading account HERE.

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

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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 The Best Ways To Invest In Australia?

Here is a range of investment vehicles you can use to protect and grow your money:

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, we recommend the best broker for Australia and worldwide, eToro - You can create an eToro trading account HERE.

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

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.

(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)

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.

The following are the most traded shares on the Australian market in 2022:

• Betashares NASDAQ

• Pilbara Minerals Limited

• AVZ Minerals LTD FPO

• BHP Group Limited 

• Core Lithium FPO

Forex

Young Aussies also have the option to trade on the foreign exchange market. It is a decentralized 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.

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 trade ETFs, we recommend eToro.

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. The most popular crypto exchange that lets you invest in digital currency is eToro. You can create an eToro trading account HERE. (It takes only a few seconds)

eToro is a leading stock broker charging zero brokerage for stock trading. 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. The exchange will charge you a fee for offering the facility to invest in cryptocurrencies.

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.

Here are the top lenders with the interest rates for six-month term deposits:

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 commodities expected to have high demand and growth potential in the future.

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.

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 is a safer and more stable way to make money.

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.

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.

Here is the list of popular banks that offer high-interest saving accounts:

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.

The best 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 I 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 these platforms.

5. How To Invest Money For Students?

There is no age to start investing. The sooner you start, the bigger your profits and the better your future will be.

If you are young and enthusiastic and looking for how to invest money as a teenager, watch out for the following top investment options based on the current economy and trends:

• 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, palladium, silver, etc.)

6. What Is The Best Way To Invest $10k In Australia?

The best place to invest money with a 10K budget is 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 To Invest 20k In Australia? 

You have plenty of options to turn your investment into long-term profit. If you are an aggressive investor looking for a moderate risk-high yield option, then stocks could be your best bet.

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

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

8. What Is The Best Way To Invest 500k In Australia?

Are you thinking of where to invest money right now in Australia? With 500K spare funds, you can invest in almost any investment opportunity based on your investment objectives and timeframe.

The best investment options are gold, property, shares, ETFs, and mutual funds.

9. 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.

We hope this guide helped you choose the best investment vehicle for your needs. Happy Investing!

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