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Home > How To Invest $5000 in Australia

How To Invest $5000 in Australia

invest 5k australia
If you’re about to invest for the first time, then we recommend starting off with small amounts. In this article, we’ll discuss how to invest $5000 while living in Australia.

An amount like $5000 may not seem like a big deal at all. However, if utilized correctly, you can still get a decent return. Over a long period of time, even $5000 can yield a significant total. Furthermore, it’s quite a safe amount if you’re an amateur. You can use it to get a feel for how investing works.

Where To Invest $5k In Australia?

Even with $5000, you still have a decent number of investment options available to you in Australia:

1. Stocks

As long as you do your homework, you can make money on the stock market. While you won’t be able to buy into high-risk assets like Bitcoin or the Nasdaq Composite Index with $5000, you still have lots of options available. For example you can buy apple stocks.

2. REITs

Real Estate is always a great investment market. According to a 2018 report by ASX, one can expect 8% annual returns by investing in Australian residential properties. But how can you expect to buy properties with just $5000?

The good thing is you don’t have to. Instead, you can buy shares in Real Estate Investment Trusts (REITs). REITs lease different types of property and then collect rent on them. Afterward, that income is distributed as dividends to shareholders. Hence, with $5000 you can still profit off of the real estate market!

There are many different types of REITs you can invest in, including:

  • Equity – These funds own and rent out properties. Hence the income comes from rent and not the sale of properties
  • Mortgage – These REITs earn money by charging interest on mortgages they lend
  • Hybrid – Rents out properties and lends mortgages as well
  • Publically Traded – These are REITs that are listed on national security exchanges

3. Gold

As mentioned above, gold is a very stable investment. You can use it to counter the effects of economic crises on your assets. The thing to remember about gold is that it isn’t really a way to make money. While it does retain its value, it takes ages for that value to rise.

In Australia, there are three ways to invest in gold:

  1. Physically owning gold assets – this includes gold in the form of coins, jewelry, bullion..etc. When buying jewelry, you should be careful to buy as close to the market value of gold as possible. Things like the design of the jewelry shouldn’t account for the price because it doesn’t retain value as well.
  2. Buying into ETFs – gold-backed ETFs are a way to invest in gold without physically owning it. You also don’t have to pay storage fees.
  3. Owning shares in mining businesses – share prices of mining businesses correlate to the rises in gold’s value. However, if these companies continue to fail at mining gold, then their future (and thereby your investment) becomes volatile.

While $5000 may not seem like a big amount, you can still invest it in a number of things. Before you invest, consider how much risk you can handle. Your current financial situation and your future goals should give you some idea of this.

There are two main things you need to consider: the current financial situation and future goals.

Risk

Each investment venture carries a certain amount of risk. It’s something you can’t get rid of. Of course, you can take measures to minimize it.

For instance, billionaire Warren Buffet always does thorough research before he buys up shares. Unlike a lot of people, Buffet hardly ever pays attention to trends in the stock market. Instead, he focuses on the company itself. The question he tries to answer is: “does this company have a good future?”

In order to figure this out, he looks at details like the following:

  • Company’s performance over the last 10 years
  • The goals of the management
  • How much debt and equity the company owns
  • Changes in profit margins over the company’s existence

By doing this kind of research, Buffet is able to determine whether the company’s stock is currently undervalued. If that is the case and he foresees growth in the future, he buys into it.

Your Current Financial Situation

Your current financial situation determines exactly how much risk you can handle.  Warren Buffet can afford to lose millions of dollars, while you probably can’t.

Consider how tight money is right now? Do you find yourself living paycheck to paycheck? Then it’s likely you might have to dip into the $5000 in question in the near future.

If that is the case, you can’t afford to have it tied up behind a risky investment. Instead, a more stable investment instrument is more appropriate, such as a cash investment. These don’t give you much in terms of returns at all. On average, cash investments in Australia yield gross annual returns of only 3.6%.  That’s the trade-off when you want to be ‘safe’ with your money.

If you don’t mind having the $5000 in a long-term investment, then consider government bonds. When you invest in these bonds, you’re basically lending money to the government. In return, the government pays you back at an average interest rate of 6.2%.

Why Invest The Money If You’re Struggling?

People don’t always invest money in order to make a profit. Sometimes they do so because they want to retain the value of their assets. For instance, during inflation, the purchasing power of a currency goes down. As a result, the value of your assets can plummet. However, if you invest in the right instruments, you can hedge against inflation.

Gold is the best possible example of this. It always retains its worth and shoots up in value during times of political and economic crisis.

Your Future Goals

Your life’s goals should be taken well into consideration when choosing what to invest in. The choice to have or not have kids, for instance, is a very influential factor. If you plan on having children, then you need to have a decent repository of money. Hence, you absolutely cannot do risky things with it.