Last month I wrote about the Australian Securities and Investment Commission’s recently released Australian Financial Attitudes and Behaviour Tracker, which found men are much more likely than women to hold investments outside of superannuation and their home.
The tracker also found that close to one in four Australians felt that nothing they do will make a difference to their financial situation. But nothing could be further from the truth when it comes to our investments.
Part of the problem could be lack of understanding – we’re just too busy to pause and get a handle on our investing options.
This month I want to help women understand how to invest to grow their wealth to improve their financial situation down the track.
The first thing you need to know is that diversification is one of the central tenants of good investing – which simply means you should not keep all your eggs in one investing basket, like your home or super.
But to start diversifying you first need to know what your options are, so here is a brief outline of some of the major options to get you started:
1. Direct shares
Direct shares – either on the Australian share market or an international share market – allow you to buy part ownership of companies. If the company makes a profit, you essentially get a cut. Some shares allow you to take this cut by paying you a yearly dividend. Others have a rule that your cut will be re-invested in the company and you only make money when you sell your shares at a time when the share price has risen.
While you can purchase shares easily online, before logging on, consider this: unless you are prepared to fully research the company you’re investing in, which includes looking at the people managing it and sitting on its board, the particular market they operate in and the what potential they have, you may need to get help from a professional. Not only do you need fairly expert analytical knowledge, you also must have the time to monitor your shares – sometimes daily – to determine the right time to sell. Frankly, this can turn into a full-time job.
2. Managed funds
When you invest in a managed fund, you pool your money with other investors, and this allows the fund purchasing power to buy shares in bulk and sometimes at a lower price. You can start with as little as $1000 and you usually have to make regular contributions into the fund. Once you buy into a fund it is low maintenance – almost set and forget. It is also easier to complete your tax return as there is less paperwork. The fees can be higher than other forms of investing – but remember that fees are part and parcel of a service that will make you money over time. Also remember that managed funds may be harder to quickly convert to cash, unlike direct shares which are highly liquid.
With hundreds of funds on the market – and many different types available – you may wonder how you choose a managed fund. The best way is to seek advice from a financial adviser who will make expert recommendations to you that are tailored specifically to you and your situation.
3. Investment properties
Buying an investment property is hugely popular in Australia, but what’s important to remember here is that this is usually a long-term investment. You can do really well with property if you pick the right property and the market performs well in your timeframe – but property is not as low risk as many people think. Things to consider include that maintenance costs can eat into your profit and there could be times when your property is untenanted and you would need to bridge the gap on mortgage repayments. Property is also not particularly liquid, meaning it could take time to sell and you can’t get your investment converted back to cash quickly.
4. Bonds
With bonds you are simply lending your money to a government or company at an agreed interest rate for a certain amount of time. In return, the borrower promises to pay you interest at regular intervals and repay your loan at the end of the term. Not all bonds are the same though – some are reasonably safe while others can be more risky.
There are also other, less popularised investment options such as futures and options – which are extremely complex – and currency trading, which is the most liquid market in the world but also carries the risk of being unregulated. If you’re an investing virgin, these investments may not be the ideal starting place.
Remember, all investments carry risk and you’ll need to make some sort of trade-off between the risk you’re willing to take and the returns you’re after.
To work out which investment option suits you it’s important to know your goals, your timeframe and how much risk you can cope with. It’s a good idea to seek financial advice too so your investments can be professionally tailored to suit your circumstances.
Also keep reading about money, as education is an important part of empowering yourself financially. The good news is that the Commonwealth Government has just launched the ‘Women’s Money Toolkit’, a free online resource to provide women with knowledge and confidence to manage their finances and achieve their financial goals.
Happy investing!
*Jenny Cattach of Cattach & Cattach is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.