The key to making the right investment decision hinges on how well you know your environment and the investment options available at that time. Of course, other factors play a part in the final decision.
How To Invest $1k in Australia
Sure, $1000 is a large sum of money, but that doesn’t mean it can buy you everything. As a matter of fact, the investment options can be limited if you only have $1000 compared to $1 million.
For instance, the shares at Warren Buffet’s Berkshire Hathaway are out of reach at over $300,000.
Best Investments with $1000
With a $1k, there are a bunch of investments you can make. It all depends on what you are aiming for. Below we have taken the time to sample a few investment options that we feel could be ideal for you.
Our list should only act as a guide because there are many other options available. Therefore, don’t feel limited by our choices.
Grab your capital, and let’s get started.
1. Stock/Equities
It is no surprise that stocks find their way in our list being an option with among the best return rates. Besides, stock is an ideal choice if you are looking for a principal source of investment growth.
On average, stock has a return of about 10% annually if you play your cards well. Some people invest in stock through index funds. The reason for this is index funds are managed professionally, and the expenses involved are small.
Besides, the commission on them when selling or buying is little. Once you have over $200,000, you can invest in an individual stock. However, be aware that the fees involved when trading individual stock is very high.
You can start small and keep growing. After all, it is almost impossible to become a Wolf of Wall Street overnight unless luck is your other name!
A trusted broker, preferably licensed by ASIC, can help you trade shares at a smaller fee per transaction. Alternatively, you can use a stockbroker; however, they charge more. On the bright side, they can offer you valuable tips and advice especially if you are not sure which stock to invest in.
2. Fixed Income Interest
Fixed interest investments are an optimal option if you are looking to take a less risky path. They generate forecastable income. Fixed income interest investments are also ideal if you are looking to expand your investment portfolio.
In Australia, the government, as well as companies, usually provide these fixed bonds. The government bond, for instance, allows you to earn from regular income in the form of interest payment. At maturity, you can get your capital (principal) back.
Note that inflations don’t affect the investment value. Before deciding on the fixed interest investment you want, keep in mind factors such as risk level of each and the timeframe.
The interest investments offered by companies tend to have a higher risk compared to those by the government.
3. Managed Funds
Managed funds work by having investors pool together their money. The money is then invested in different assets. The returns you will get are determined by the value of the assets and your contribution to the pool.
An investment manager handles active funds. The manager may charge you for his/her services. The investment manager finds worthwhile stocks and then proceeds to invest in the stock on behalf of the group.
Since only the investment manager can handle the funds, it is essential to find and use a reliable and trustworthy fund manager.
For passive funds, you get returns that are determined by the value of the fund’s investment. These funds buy into different assets. Passive funds are inflexible compared to other investment options.
The upside of a managed portfolio (managed fund) is that some offer you a certain degree of diversification, which you can hardly get as an individual. The ones that provide you this diversification are those where the fund manager invests in more than one asset class.
Managed funds don’t guarantee you positive returns, which is perhaps their biggest afterdeal.
4. Annuities
Unlike managed funds, annuities offer a level of assurance. This is because they provide you a guaranteed income no matter the direction of winds in the financial market. The income can either take a fixed term or life annuity form.
For fixed term, you will be provided with regular payments over an agreed period, while for life annuity, you will be provided with regular payments over your lifetime.
Of course, the payment sum depends on your investment amount and actuarial calculations. These calculations are used to project and tell forthcoming upshots by analyzing the economic or demographic patterns.
Just like any other investment, annuities have their pros and cons. For example, with fixed annuities, you can be confident that your $1k is in a ‘safe’ investment. On the other hand, the returns associated with fixed annuities are generally low, at around 3%.
Fixed (equity) indexed annuities also offer the same guarantee as fixed annuities. The difference between the two lies in how you get the returns. FIAs can be complex to understand, which explains why investors don’t like them
5. EFTs
Exchange-Traded Funds (EFTs) are more of a combination of equities and index funds EFTs also offer diversification as the investment amount will be injected in various assets from a specific class.
Unlike an index or managed fund where you buy units, with EFTs, you can purchase and trade shares. Not only is buying these shares cheaper but also simple. Besides, you get more flexibility buying shares in an ETF than with managed funds.
Note that you will pay some brokerage fees if you decide to trade ETF shares using a broker.
While ETFs can offer a range of benefits for investors, it’s important to note that there are also some potential downsides to consider. Here are a few things to keep in mind:
- Market risk: Like any other investment, ETFs are subject to market risk. This means that if the underlying assets in the ETF (such as stocks or bonds) perform poorly, the value of the ETF may also decline.
- Tracking error: While ETFs are designed to track an underlying index or asset class, there can be some variation between the performance of the ETF and the performance of the index. This is known as tracking error, and it can occur due to factors such as fees, trading costs, and timing differences.
- Liquidity risk: While ETFs are generally highly liquid and can be bought and sold throughout the trading day, there can be some liquidity risk associated with certain ETFs. This is because some ETFs invest in less liquid assets, such as emerging markets or high-yield bonds, which can be more difficult to trade.
- Fees: While ETFs are generally less expensive than actively managed funds, they still come with fees and expenses that can eat into your returns over time. These fees can include management fees, brokerage fees, and trading costs.
- Tax implications: Like any other investment, ETFs can have tax implications for investors. For example, if you sell an ETF at a profit, you may be subject to capital gains taxes. Additionally, if the ETF distributes dividends, you may be subject to taxes on those dividends.
ETFs can offer a convenient and cost-effective way to invest in a diversified portfolio of assets, it’s important to consider the potential risks and downsides before making any investment decisions.
6. Peer 2 Peer Lending
Peer 2 peer lending finds its way on our list because it is an emerging option in the investment world. As the name suggests, P2P lending involves one party that is looking to borrow money while another party is willing to lend out that sum.
There is also another party, usually a website that makes the arrangement possible. Some of these websites include RateSetter, SocietyOne, Harmoney or Now Finance. As the lender, you can earn returns in the form of interest, just like banks do.
Much as you can choose the borrowers, P2P lending doesn’t have guarantees or many policies for assurance in place. Returns vary but can be averaged to over 6%.
Some lending platforms allow you to have the investment spread across many loans. That way, your investment isn’t loaned to a single person.
P2P lending is both a high risk and high return option; therefore, think over it before deciding to make it your investment choice.
Of course, there are other options, such as gold and property which are viable. Gold investment offers stability even when the stock, cryptocurrency, and property markets are crashing down. Returns from the gold investment aren’t very significant, though.
Property investment is a good idea, at least for the time being. Areas with a growing population and good infrastructure are the best when it comes to property. The returns are good and worth the risk.
Starting your investment Journey
If you are a beginner or new to investment, things may seem confusing and challenging. With all the pressure to perform well and make good returns, you may end up doing the exact opposite.
That is why you need a well-thought plan backed with achievable goals. Don’t be afraid to fail or mistakes. They say experience is the best teacher. That, however, doesn’t justify you repeatedly investing in a sinking ship.
The game is tough, but once you get used to it, it becomes easy to dodge hits and jump out of the ship before it sinks.
Here are some useful tips for you:
- Do good research
- Understand your risk profile
- Consult an investment expert or financial adviser to help you if you get stuck
What To Do With $1000 – Your Investment Plan
In this article, we will talk about the options you can take and everything you need to know about these options. We hope this article will guide you in making the right investment decisions.
Note that the discussed options aren’t the only ones you have.
Just because we didn’t mention the investment you had in mind doesn’t mean it is not a good option. However, before setting your money into the venture, consider talking to a reliable financial adviser.
Your willingness to take risks as well as personal circumstances determine the investment choice you make. They will also determine how good or bad your investment returns will be.
Much as investments are a gamble, holding the sum $1000 is even a worse decision. Sorry to break it to you, but keeping the money with you will likely cost you.
Inflations and tax will cut down on your cash. At the end of one year, you will be fortunate to have the same amount, let alone have made a gain. Unless you are over 70 years, it will be useless to hold that money.
At less than 60 years old, you are still in the wealth-creation group rather than that of preservation. Therefore you should be minded towards growth and investment strategy using your $1000 capital.
Factors to keep in mind before making investment decisions
Before going wild and making an order of Tesla’s latest cyber truck, take some time to weigh and chew over your options. Laying out money on a bad venture will not only bring you heavy loses but also leave you wrecked.
You have to figure out what investments you want and those you want to stay far away from.
In addition, you have to invest in options within your limit.
While at it, you also have to keep in mind the following
How comfortable you are with the investment
You don’t want to throw money into an investment just because you heard it is profitable if you are not pleased with it. This is because you are more likely to make losses than gains on your hard-earned money.
The risks you are willing to take
If you are not one willing to take risks, you can go for the less risky investments rather than those with huge risks.
The best path to take when managing risks is diversification. Diversification entails spreading your investment over various assets. This will lessen your exposure to a particular economic event.
If one asset performs poorly, the others will remain unaffected.
The timeframe
Depending on your financial goal and when you want to achieve it, you can either go for a short term or long term investment.
The cost and additional expenses
Investments like property may cost you other additional expenses such as maintenance and renovation.
If you are going to invest in such options, keep in mind the charges you will incur.
Tax
Besides additional fees, you have to be aware of the taxation on the investment option you want.
Your financial goals
Critical to the decision you make, are your financial goals. The returns you aim to achieve should be lined with the investment you make. It is illogical to expect a 20% gain annually when you invest in annuities
Wrap up
If you are not sure where to step on the investment field, it is best to get in touch with a financial adviser to help you out. As of the moment, some of the best investment options in Australia are short-term interest-bearing investments.
Lately, property and stock, by and large, haven’t been doing so well hence the need to stay away from them. This is not to say that you can’t make good returns if you decided to invest in real estate and equity.
You just need to know what to invest in, when to invest and how much to invest.