What is the Best Way to Invest 100k in Australia
A lot of people view investing money as gambling. While there is a certain risk involved with such a venture, not all is left to chance. The key is to do your research and be able to differentiate safe investments from unsafe ones.
Take the stock market. A lot of amateur investors try to jump in on upward-trending stocks and make a quick profit. They do this without researching important factors such as company assets/liabilities, profit margins, commodity reliance and more, all of which ultimately affects the future value of the stock.
That’s why you should think carefully before you invest a large amount like $100,000.
How Should You Invest $100,000?
Here are a few of the best investments options available currently:
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A lot of people make money on the stock market. This includes billionaire Warren Buffet, the ‘Oracle of Omaha’. It’s quite simple in theory. You buy stocks that you anticipate will rise in value and then sell them off when they do. The hard part is figuring out which stock to invest in.
As mentioned above, doing thorough research can help. Before Warren Buffet buys up any company’s stock, he really gets into the nitty-gritty. In particular, he looks at factors like these:
- Overall company performance – He doesn’t just look at recent times. Instead, Buffet goes back several years, or even decades if he can.
- Debt/Equity Ratio – The higher the debt, the more volatile a company’s future looks. This is because of the large interest expenses that await the business.
- Profit margin – What Buffet is concerned about is increasing profit margins. This shows signs of efficient management and company growth.
- Competitive advantage – Buffet tends to shy away from companies that don’t stand out from the competitors. Such businesses tend to not to last very long.
Gold is generally considered a safe investment as its value tends to remain quite stable during times of economic instability. This is because it isn’t affected by nearly as many factors as the stock market. Gold is also a great instrument for diversifying your investment portfolio.
There are three main ways for Australians to invest in gold:
- Owning the physical asset – You can buy gold in the form of bars, coins, jewelry and so on. However, you must make sure that it is stored in a safe place. Ideally, you would use a secure deposit box in the vault of a bank.
- Gold-backed exchange-traded funds (ETF) – In this scenario, a fund owns physical gold and you own shares of the fund. This way, you can avoid storage fees.
- Investing in gold-mining companies – This is perhaps the riskiest method as it can either mean huge gains or huge losses for you. We recommend caution when looking at companies in the exploration phase. Most of them do not actually end up finding gold.
Gold is definitely a long-term investment with very little gross annual returns. However, it’s the perfect instrument for those who seek stability, above all else.
The Cryptocurrency investment market is relatively new compared to others on this list. Bitcoin is, of course, the most popular cryptocurrency and is currently valued at over AUD 14,000! At the time of writing, the value of Bitcoin is on the rise following a significant dip last year.
While its price fluctuations might make it seem like a volatile investment, we can see it stabilizing in the future. Cryptocurrencies are slowly being accepted around the world. In fact, certain governments, including the UAE, are gearing to make a shift to completely blockchain-backed systems. Cryptocurrencies appear to be the future and it might be a good idea to invest in them during a slump.
4. Real Estate
Real estate is one of the best non-stock investments you can make.
According to the ASX/Russell Investments Long-term Investing Report, investing in Australia’s residential property market can be quite rewarding. As per the report, residential property investments averaged an attractive 8% in annual gross returns. This value is definitely credible, having been based on real estate transactions spanning over a decade, from 2007 to 2017.
Consider Your Current Financial Situation
Risk isn’t something you can completely factor out.
Even if you’re well-prepared with your research, there’s always the tiniest possibility of losing out. Some unforeseen condition could suddenly come into play and spiral the entire economy into a downturn.
They say the flap of a butterfly’s wings can bring about a hurricane. What’s to say a couple of misguided financial decisions by important people won’t suddenly bring whole industries down?
Consider how tight money is for you right now. Do you foresee yourself having to dig into $100,000 in the near future? In that case, you’ll have to be extra careful.
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Not only will you have to find a safe investment venture, but you also need to make sure it isn’t inaccessible for too long. In other words, ease of liquidity is something you need to be concerned about.
Cash investments such as term deposits are the most liquid but they also yield very low returns. As of last year, Australians can expect average yearly gross returns of 3.6%.
Slay Your Fear Of Investing
If you’re already financially secure to a point, then you may consider long-term investments.
Since you’ll be able to handle some risk, why not scope out a few high return investments? For instance, real estate is something that a lot of Australians get into for the long run.
They may buy property for cheap in the hopes of selling it in the future when values increase.
You should also consider your life goals before you invest.
For instance, if you want to start a family, then high-risk investments may not be the best option. In that case, you may want to look into fixed-income assets like government bonds.
You basically lend money to the government, which is paid back to you with interest.
According to an investment report by ASX, average returns of around 6.2% per year can be expected with government bonds.
That’s $6200 per $100,000 per year, which you can put aside for a college fund for your kids.
On the other hand, if your kids are all grown-up and independent, then perhaps you could afford to be a bit more frivolous.
Investing $100,000 isn’t something to be taken lightly. There are many things to be taken into consideration when choosing your investment instrument. First and foremost, your current financial situation will dictate how much risk you can handle. Your future goals should be factored in as well.