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Investing
Top 8 investments ideas you need to know about
August 07, 2008
Gillian Bullock, FatCat.com.au
If you were going to limit the investing universe, which would be the top options? Asset classes are usually limited to shares, property, fixed interest and alternative assets, but when you drill down there are thousands of different options. At the very least, you should always make sure you understand what you are investing in. Take art – it may seem appealing, but if you don’t understand what you are buying then you should steer clear.
So what should you consider?
Shares
Despite the volatile sharemarket, the consensus remains that over a 10-year period shares will out perform all other asset classes. Share investment is for the medium to long term, so you should invest for at least five years. Col Lewis of ipac securities says that given shares are at a very low point right now, if you buy quality you should be on a winner. In addition he says with prices so low, dividend yields are looking attractive.
Hans Kunnen, head of investments market research at Colonial First State believes that resource and food stocks are the go. “Resource stocks still have a lot of legs with the China story,” says Kunnen. “Food stocks are also a good investment given the rising population and the decrease in arable land per capita. As income rises, food tastes change so stocks like Australian Wheat Board and fertiliser companies (are attractive).”
Blue chip stocks also remain top of the experts’ lists given the tax benefits of fully franked dividends.
Property
Owning your home is often seen as a dead investment. OK, any capital growth in the property is tax free, but if the money is just sitting there, it’s not working for you. But the good thing about building up equity in your home is that you can borrow against it to invest in assets that will deliver an income. Borrowing against your home is the cheapest form of finance, but make sure you only use these borrowed funds for non-depreciating assets.
Adam Coughlan of Australian Unity Investments says diversification is the name of the game when it comes to property so look at property funds or syndicates that hold a range of properties across Australia and in different sectors such as industrial, office or retail.
If you do consider direct property investment and it’s residential, then buy a new property so you can enjoy depreciation of 2.5 per cent a year over a 40-year period.
Healthcare
With Australians living longer and the baby boomer generation predicted to swell the number of older Australians over the next 25 years, demand for healthcare is set to increase significantly, Coughlan says there are some good opportunities to invest in healthcare, in particular through properties devoted to healthcare and medical services as they will not be as affected by volatility and economic cycles.
Global corporate credit
In the wake of the credit crisis, yields on global corporate credit have risen sharply while bond prices have fallen sharply. Corporate credit now has a running yield of 10 per cent. Colonial’s Kunnen suggests global corporate credit is better than local as it has more depth so you can spread yoru risk better. “It’s an optimum time to be buying,” says Kunnen.
Super
While super is not an investment per se, it is still an effective investment vehicle which should not be overlooked. The tax concessions go a long way to making your money grow faster. After all, why pay your marginal tax rate which could be as high as 46.5 per cent when you need only pay 15 per cent (or nothing in the pension phase) on your investment earnings?
Cash
While cash is never seen as a great investment option because there is no capital growth, it should still be a part of your portfolio. This is particularly so in the current volatile markets and also because rates are reasonably competitive at the moment. While you might consider a regular savings account or a term deposit, ti can be hard to go past the many online savings accounts that exist, offering you money at call at rates of 7 per cent plus. Cash also gives you the liquidity to take advantage of any investment opportunities that might come your way.
Gearing
Whether you borrow against the equity in your own home or consider margin lending, gearing can offer you the advantage of amplifying any gains you make. But should your investments lose ground then your losses would be magnified too. With an equity loan, at least you won’t be called on to make margin calls and so you may be able to ride any storm. With a margin loan, you could be hit for a call if the loan to value ratio falls below the agreed percentage and you then might be forced to sell stock at a bargain basement price to fund that call.
Yourself
One of the best investments you can make is in yourself. Andrew Heaven, an AMP planner at Wealth Partners says this includes educating yourself to improve your employment prospects and also taking out appropriate insurance. Income protection insurance is vital if you have debts and dependants. The maxim rolled out here is that why do you not think twice about insuring your house or your car, but you don’t think it’s important to insure your very livelihood.
More articles from this edition of CompareShares:
Property: Property scorecard - best property buys
Trading : Spoilt for choice - when there are too many stocks to buy and sell
Ask the expert – Share Trading: Top 5 pointers to being a successful trader and how to avoid stuffing up
Fundamental analysis: Incitec Pivot remains a popular bet with investors
Investing: Top 8 investments ideas you need to know about
Companies: Asciano keen to offload assets
Mining: Atlas Iron signs JV deals with Fortescue
Loss: Tabcorp reports $164.6m loss
Commodities: Minara half year profit down by 80%
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