Discovering investment options (Part 1)

For many people, a big cash injection such as an inheritance could mean the difference between a comfortable retirement and a stretched one.

It can be easy to spend cash on things you have always wanted such as a pool for the backyard or a home renovation or you may decide to tuck all the money away into a term deposit, but there are other options available to help make the most out of what you have.

Superannuation funds

There are varieties of superannuation funds available with each having varying features. In most cases you can choose where your contributions go, but if you do not choose, your employer will generally pay your super contributions to their default provider¹. It is important to make the right choice when it comes to your superannuation provider as this can make a big difference to your retirement future. Here are four key features to consider when choosing your super fund:

1. Fees – High fees can dip into your super balance
2. Investment choice – r example, you may choose to allocate a certain percentage of your super into high risk, high growth global environmental opportunities or conservative Aussie shares – the flexibility may benefit you if you like to keep your options open.
3. Insurance – Some superannuation funds come bundled with certain types of insurance. If this is important to you, it can be worthwhile investigating further and to shop around.
4. Transparency – Understanding where your funds are invested is important and goes beyond an allocation to ‘Australian shares’ for example.

Property investments

Like most investments, property prices can fluctuate over time². Careful planning and research can help you make the right decision when it comes to property investment. If you are certain about this option, you should determine your goals for investing and talk to either a financial planner or a home lending specialist about how much you can afford to spend on an investment property. Finding the property itself is by no means the easiest step, but it doesn’t have to be the most difficult either. And, remember, this is an investment decision, not a lifestyle decision so the choices you make need to reflect that. Here are five important things to consider when evaluating an investment property:

1. Does the area have low rental vacancy rates?
2. What is the average weekly rental return for a comparable property?
3. Is there public transport nearby?
4. Is the property close to schools, shops and other amenities?
5. Will a house or apartment best suit your financial goals?

It’s important to keep your financial goals in mind. Don’t settle for something you’re not sure about or get caught up in the excitement of the house hunting process. Need to know more about wise financial investments? Contact the IMB Bank Financial Planning team.

Shares

Purchasing shares will generally make you a part owner of a company. Before taking the leap, consider your investment strategy by speaking to a professional financial advisor³.

What are the benefits

• Potential capital gains from ownership of shares that could grow in value
• Additional income from dividends (not all shares provide you with the right to dividends)
• Potentially lower tax rates through conservative long-term capital gains.

What are the risks?

• Drops in share price value
• Depending on the type of shareholder, you may be the last to be paid if the company becomes insolvent
• Share prices go through cycles of peaks and troughs so dividends can vary
• Real risk of losing all of the money that you have invested.

Bonds

A bond is a financial instrument that is provided to an investor in exchange for capital (cash) by a government or corporation if they need to raise money. Investors who purchase bonds are lending money to the bond issuer for a fixed period. During this period, interest payments are made to the investor. At a stated future date, the principal amount borrowed will be returned to the investor⁴. If you’re looking for a safer investment, some investors tend to steer towards government bonds as they are generally less volatile. Below are some of the benefits and risks that may be involved⁵.

What are the benefits?

• Generally less volatile than the share market
• Inversely related to interest rates, as interest rates decrease the value of bonds increase
• Investors can still sell bonds without waiting until maturity.

What are the risks?

• Can be complex financial investments when taking into account, time to maturity, economic conditions and the financial stability of the issuer
• There are different types of bonds and each have varying characteristics and risks
• Generally, lower risk bonds have smaller returns. As such, bonds may be more suited to longer-term investors with bigger capital investments.
• Real risk of losing all of the money you have invested.

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