Property, shares and cash in the bank have long been Australians’ favourite investments, and many still stick with just one.
However, widening your investment vision across all three and beyond can deliver improved wealth and extra protection when a downturn strikes.
A wide range of easily-accessible investment alternatives has sprung up in the past decade.
William Buck’s wealth advisory director, Adrian Frinsdorf, said a majority of Australians took a fairly narrow approach to investing “due to the historical returns and accessibility of shares and property”.
However, as share and property prices reach fresh highs, the case for diversification has strengthened, Mr Frinsdorf said.
“Alternative asset classes can reduce risk in a portfolio, providing a smoother return and larger return over time,” he said.
Mr Frinsdorf said his firm liked to see clients owning “direct shares, supplementing this with a good small cap manager, using infrastructure, global asset allocation funds, global funds to access US and European investments, private equity investments and bonds either direct or via a fund”.
Financial coach Karen Eley said diversification was often ignored because many people simply followed others.
“They may have work colleagues, friends or family with shares and properties,” she said.
“You don’t hear people talking as much about investing in commodities, infrastructure or gold – it’s a bit of a fear of the unknown.”
Not all investments are equal. Ms Eley said gold was a store of wealth but never paid an income stream, while Bitcoin was red-hot among investors a couple of years ago but has more than halved in value since.
Here’s a look at today’s investment options to broaden your wealth.
Residential property is arguably Aussies’ most popular investment, with about 2.2 million landlords nationally, according to Australian Taxation Office data.
However, millions more own real estate through investment funds and superannuation. Retail, residential, office and industrial properties are owned by super funds either directly or indirectly through real estate investment trusts (REITs) that pool people’s money to buy assets and receive rent.
These funds can be bought by everyday Australians on the ASX, and the big ones include Westfield shopping mall owner Scentre Group, Stockland and Goodman Group.
Investment funds and super funds also hold overseas real estate. Plenty of foreigners own our buildings, so why not contribute to owning some of theirs?
Other ways to diversify include property syndicates that pool money to buy a big property asset, or fractional investment firms that allow individuals to own a small slice of a single investment property in one of several capital cities.
Owning a business is a proven money-spinner, and investors without entrepreneurial flair can easily buy into them through share markets in Australia and overseas.
As a shareholder you own a small part of the company, share in its ups and downs and usually receive dividends.
Buy Woolworths or Coles Group shares and you own part of the supermarket down the road, BHP and Rio Tinto give you exposure to Australia’s mining wealth, while healthcare giant CSL puts your money at the forefront of global medical advances.
Choosing individual stocks can be tricky, so investors can use managed funds that employ people to pick stocks for them, or exchange-traded funds (ETFs) that invest money in line with stock exchange indices such as the ASX 200 or the S & P 500 in the US.
ETFs are listed on the ASX and are booming, with assets under management jumping by 50 per cent last year to $60 billion as investors are attracted to their lower fees.
Investors using managed funds and ETFs also can spread their money into infrastructure businesses, commodities, technology and currencies.
Ms Eley suggested using professional investment managers. “There’s some fantastic infrastructure funds – they’re one of my favourites,” she said.
“Infrastructure assets are essential assets and in a recession we all still use electricity, gas and water.
“Some asset classes perform better than others depending on the cycle of the market. The more diversification you have really does lower your risk profile.”
Cash investments are more than just a few bucks in a bank account.
While savings accounts and term deposits have delivered minuscule returns lately, other assets derived from cash or cash loans have done better.
Corporate bonds lend your cash to companies for higher returns than cash deposits, while government bonds lend it to governments. Mortgage securities lend your cash to homebuyers, but make sure the borrowers aren’t low quality and likely to default.
As interest rates globally have plunged, so has government bond income.
A new report by Midsec Financial Advisors says investors traditionally paid $15-$20 to earn a dollar of government bond income annually, but in 2019 the price to earn a dollar of interest went above $100.
“When things are scary, investors quite often opt for the security of government bonds compared to shares and properties, but are things so scary that you’d pay the highest price ever paid for bonds?” it says.
Midsec forecasts that over the next decade term deposits will average 2 per cent interest, government bonds 1 per cent, corporate bonds 3 per cent, mortgages 4.5 per cent and a blend of defensive assets 2.6 per cent.
Investors can also use cash to buy currencies, but just like Bitcoin or risky loans these can wipe out wealth quickly for those who don’t understand where their money’s going.
Originally published as How to expand your investments