For decades, the great Australian dream for many of us has been to own our own home. But with the market now more unattainable than ever before, that dream is now looking further and further away. And for some, a complete impossibility.
But according to Nicole Heales, a Melbourne-based financial adviser specialising in helping women invest, housing isn’t everything. Here, we discuss three alternative ways to put your hard earned money to good investment use.
1. Managed funds (a short to medium term investment).
For many of us, the idea of managing direct shares can be scary. So scary, in fact, it’s all a bit too hard. This perception, Heales says, is one that’s commonly shared and not without reason.
For starters, you have to research the market, decide where to invest and check in on your shares every day to ensure they’re working their hardest for you. But if that sounds like your living nightmare, that’s where the managed fund comes in.
“Managed funds are really just a bundle of shares that somebody else manages for you,” Heales says.
“You buy a bundle of shares that a fund manager or an index fund manager takes care of for you and that takes away the paperwork and responsibility of the day-to-day management from you.”
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Other than having to do next to nothing, the other benefits of managed funds are that they cost a tiny amount for someone to manage (sometimes as little as 0.5 percent) and you can start small.
“Some people start with as little as $1,500 and gradually build that up to more over time,” Heales says, adding, “it’s a way to build wealth which is going to give you a high return.”
Importantly, you can access money from your managed fund at any point.
“It’s a really easy way to have your money working for you but also have access to it,” Heales says.
2. Investment bonds (a medium to long-term investment).
According to Heales, investment bonds are similar to managed funds in that they’re still a bundle of shares that someone else is managing for you, but there are a number of primary differences.
“Investment bonds are really good for long-term planning,” Heales says, not least because after 10 years they become capital gains tax free. “So, for example, if you’re 28 and think you would like to own a home by the time you’re 40 but will need 12 years to get there, this is a great option. You set them up as an ongoing investment strategy and just have that in the background working away for you.”
Additionally, tax is included within the bonds.
“With managed funds you have a tax statement every year and you have to put that in with your income tax,” Heales says, “but these ones are all paid within the bond, so that means you don’t have to worry about dividend payments. It’s a very clean, set and forget type policy.”
The other major benefit of investment bonds is that, permitting you have enough, you can use them as equity to borrow against, and they often allow you to access a lower interest rate than the banks can offer.
3. Superannuation (a long-term investment).
Given how far away its pay day is, the prospect of investing in your superannuation may not seem particularly exciting now, but as Heales points out, "time is money's best friend."
The major benefit of investing into you super, Heales says, is that it's the most tax effective investment of all three options and if done right can actually provide you with short-term options.
"If you make additional contributions to your super throughout the year," Heales says, "you might end up getting a tax refund, which can then be used to put into a managed fund."
That money not only then works for you, but is also accessible when and if you need it, which your super is not. Or in other words, you're getting the best of both worlds.
The other important reason to consider investing in your retirement, Heales says, is because women almost always retire with less superannuation than their male counterparts thanks to the gender pay gap and taking time out to have children or care for family members.
"If you can put money aside now," Heales says, "the time and the compounding interest applied is going to have a huge effect in the long run."
The major con, with superannuation investments though, is that you can't contribute more than $25,000 a year and you can't access it until you're much older.
General Advice Warning: The information contained within this article is of a general nature only. Whilst every care has been taken to ensure the accuracy of the material, Nicole Heales and Nicole Heales Financial will not bear responsibility or liability for any action taken by any person, persons, or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.
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