A diverse range of investment accounts is available for Australian investors, tailored to your investment goals to individual circumstances, such as risk tolerance, expectations for investment returns, and preferred investment terms. But there is one golden rule: Always invest with your spare money as all investments come with risks. This means your investment funds should be your disposable income after you take care of day-to-day living expenses. Now, let’s navigate the best types of investments that Aussie investors can consider.
Savings Account
A savings account is one of my must-haves in the investment toolkit, providing cash for those “rainy days” while earning interest income.
A savings account usually refers to bank savings or cash investment. A typical savings account can be term deposits with a bank, building society, or credit union. In Australia, the Financial Claims Scheme (FCS) has your back, ensuring that all savings accounts are protected, with the government providing coverage for deposits up to $A250,000 per account holder.
Cash is one of the asset classes, tending to outperform when interest rates are on the rise during a central bank’s rate-hiking cycle. However, it might not be the top choice in a low-interest environment due to the risks associated with inflation.
Share/equity Investing Account
My preferred investment account is a share trading account, thanks to its high liquidity, flexible trading options, convenient access, and potential for higher returns.
A share trading account allows investors to buy or sell shares on stock exchanges. Most of the big brokers in Australia provide access to mainstream stock markets, such as the Australian Securities Exchange (ASX) and the New York Stock Exchange (NYSE), with reasonable fees, catering to both active traders and long-term investors.
A share investment account enables investors to create a portfolio based on individual investment decisions. It also serves as an effective avenue for earning dividend income, particularly for those seeking stable higher yields. Additionally, investors can diversify risks by investing in exchange-traded funds (ETFs) through these platforms. Investors can access trading accounts through online platforms and mobile apps, facilitating easy monitoring of markets, execution of trades, and receipt of real-time market information.
Derivatives Accounts
I must introduce the derivatives investment accounts to those who are experienced in investing and trading as these are tools for hedging risks and leveraging trades in the complexity of the financial markets.
Derivatives come in the form of contracts deriving from assets such as cash, shares, rates, commodities and currency trading in Australia. There are different types, such as futures, options, forwards (Contract For Difference or CFD), and swaps. Here’s a simple example: Say you own shares and want to protect yourself from potential losses. You could use an Australian CFD broker to bet against the shares (short selling) while keeping your ownership in the physical share markets. Or, if you want to lock in profits from your current investments, you might use an option contract.
However, derivatives involve more risk because they use higher leverage and are speculative in nature. While leveraging can boost gains, it can also lead to bigger losses. That’s why derivatives are best suited for investors who really understand how the market works and have a solid system for controlling risks.
Superannuation Account
Superannuation is a retirement savings investment account for Australian investors, and I see it as an absolute must for working Australians. It comes with compulsory requirements for employers to contribute a percentage (11%) of an employee’s salary to the funds. In addition, investors can benefit from a lower tax rate, longer-term wealth accumulation, and insurance coverage. While most people prefer having professionals manage their funds, some account holders can opt for the Self Managed Super Fund (SMSF). With this option, you get to directly manage their superannuation funds, making your own investment decisions. It also provides access to real-time trading, market information, and independent research.
Managed Funds Accounts
For those with limited knowledge of financial markets, a managed fund is one of the most suitable investment accounts. A managed fund is a type of investment vehicle where a professional fund manager pools money from multiple investors and then buys and sells financial assets, such as cash, stocks, bonds, and property trusts, on behalf of investors. Investors can opt for different types of managed funds, such as growth, balanced, conservative, and cash, aligning with their individual risk appetite and investment objectives. However, managed funds also come with drawbacks, including advisory and account fees as well as limitations on withdrawals.
Disclaimer: This is not investment advice and should be read as general information.
Tina was a Market Analyst at CMC Markets from 2015 to 2024, providing client education, market commentary, and media presentations. She specializes in technical analysis and market fundamentals. Tina believes financial markets comprise a vast area reflecting economies, politics, history, psychology, and philosophy. As a result, her analysis is based on her interpretation of a specific country’s economic and historical background, alongside investor sentiment and behaviour.
Tina’s expertise has garnered recognition, with her commentary frequently quoted by reputable sources like Bloomberg, CNBC, Routers, WSJ, and AFR. Her insights span a diverse spectrum, covering various financial domains, including stock markets, foreign exchange, commodities, and cryptocurrencies. Previously, she also spent significant time with China Central Television. This experience allowed her to develop a deep understanding and insight into China’s economics and business.
