How To Invest $5000 in Australia – Best Way in 2020

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How To Invest $5000 in 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 2020 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.

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.

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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.

How To Invest 20k

Do you have AU$20.000 or more to invest and you are from Australia? We’ve go you covered in this article. We will show you the best 20k investment ideas for new investors.

The entire premise of investing rests on the concept of trying to earn as much profit from the money that you initially invested. This is why most experts would suggest that $20,000 is a good amount to start with.

Now, when you do have that amount in hand, your next question may be, how do I invest $20K in Australia?

Luckily Australian investors have a lot of investment choices to choose from.

This is what I recommend:

  1. Go and register on highlow.com (Highlow is a trusted Australian broker)
  2. Make a small deposit ($500 if enough to start with)
  3. Work on your strategies and deposit more later on

This is the most simple, easy and hassle free way to get started with investing. If you need more info read our Highlow review.

Well, this article seeks to answer that question and to help you determine the best way to invest your money. This will help you make a considerable return. Here is what you need to do:

1. Determine Your Financial Goals

One of the first steps is to take a close look at your current financial situation and then determine your overall goals. This information will make it easier for you to figure out just how much risk you can incur with your investments. Thus, by examining your financial status and understanding where you want to end up, you can identify which investment opportunity is best for you. Let’s take a closer look at this phenomenon.

For instance, are you someone who may need access to money urgently, even though you do have $20,000 to invest? In this scenario, you may not be able to withstand a great deal of risk. This is because if you were to experience a small loss, this would affect your monetary situation, particularly if you required the money for an emergency.

On the other hand, if you are someone who does not need to touch your investment money, you can handle some risk. So, look for long-term investments that will allow you to garner considerably higher yields, even though there is some uncertainty involved.

Now, when considering financial goals, you also need to focus on how much money you would like to make within a certain period of time. For instance, if you are relatively young and have a long time until retirement, you can opt for a financial avenue that offers lower yields but also with less risk involved. In the event that you are rather close to your retirement age, it makes sense to invest in higher yield financial structures.

2. Which Type of Australian Investment Ideas Are Right for You?

Once you are a bit clearer on your current and future financial aspirations, it is time to move onto the investment ideas that are best for you. There are a few options available, depending on the type of risk you can accept as well as your preferred return on investment. Here is what they are:

A) The Moderate Risk, High Yield Option

Imagine that you don’t mind experiencing small losses as long as you are likely to get a good return on your investment. Here, you will find that equities such as shares are your best option. Australian shares, in particular, have a history of offering long-term, high yields on your investment. While there may be highs and lows during that period, it is still a great way to multiply your original 20K.

Of course, this does depend on you choosing the right stock, at the right time. So, if you don’t have too much experience in the stock market, it can be helpful to get some guidance in the form of a financial advisor. This is especially true if you are looking to invest most of your savings in shares and stock.

When investing in stocks:

  • you can expect a return per annum that ranges from 4 to 7 percent, and even higher.
  • To enjoy better results, it is important to focus on companies that will do well in the future.
  • You should keep in mind that previous fiscal performances of a company may not have a significant bearing on their future position.

If you don’t want to go through the trouble of choosing the stock yourself, you can invest in an Exchange Traded Fund or ETF. In this instance, your money is pooled together in a fund, along with other investors, and a manager will invest them in various assets. So, the ownership of the asset, here, is indirect. If you want to learn about trading, you can read some trading success stories here.

Although you can make quite a large profit with an ETF, there are also some downsides to consider such as underlying fluctuations and a lack of liquidity. This is why you need to be careful about which fund you join. Now, to avoid any negative tax implications, you will find it best to opt for an Australian ETF that more or less deals with local investments.

B) The Low Risk, Moderate Yield Option

If you don’t want to incur too much risk but still want a decent return on your investment, then you may want to consider Australian government bonds. These can be traded on the Australian Securities Exchange (ASX) and can be either Exchange-traded Treasury Bonds or Exchange-traded Treasury Indexed Bonds.

With Exchange-traded Treasury Bonds, there is a fixed face value – this is the amount that you will get back once the bond has matured. These will have the same annual interest rate until maturity and this will be payable every six months. Now, the face value for Exchange-traded Treasury Indexed Bonds is adjusted for the movements in the Consumer Price Index (CPI). You will be paid a fixed interest rate that is based on the adjusted face value. The payments will be made on a quarterly basis.

It should be noted that although Exchange-Traded Treasury Bonds are impacted by inflation, Exchange-Traded Treasury Indexed Bonds are not. The main advantage with bonds is that there is little risk involved but you do get paid on a regular basis. However, these may not be the most liquid options as the market value of the bonds will depend on the time that you are attempting to sell the bonds.

C) The Low Risk, Low Yield Option

While investing, there are certain ways to mitigate the level of risk that you are exposed to. Nevertheless, the downside with this option is that there is also a limit on how you can expect as a return. Still, if you are someone who can’t deal with losses or want to have access to your money with little notice, here are the best avenues in Australia for you:

  • First, there are high-yield savings accounts but the name is somewhat deceptive. This is because, when compared to stocks, these accounts don’t actually produce very high yields. They do, however, allow you to earn more interest than traditional deposit savings accounts. The main benefit of high-yield savings accounts is that they keep your money safe so you won’t have to worry about losing it. You could also take a look at vanguard.
  • Then, there are money market accounts – although these may not be the most interesting investment option around, they can offer you some advantages. Much like with high-yield savings accounts, money market accounts provide you with greater financial stability. As such, you can be certain that your money will not disappear at any point. This is especially true if you have around 20K to invest, as these accounts typically require higher minimum deposits to get started with.

These accounts are not just suitable for investors looking for lower levels of risk, they are also right for anyone requiring a more liquid investment option. You will find that, within reason, you are able to withdraw your money from these accounts when needed.

3. What to Consider When Investing 20K – Investment Ideas

As you can imagine, it isn’t enough to just narrow down the type of investment you want to engage in. You will also have to figure out what sectors and industries to focus on, giving you more investment ideas. This is rather significant as it can determine whether or not you can actually turn your initial investment into a long-term profit. You will need to do some research to figure out what these top-performing sectors are.

Often, it is a matter of figuring out what sectors are performing well in your own country. For instance, at the moment, Energy, IT, Materials, and Health Care are the best Australian sectors of the year. Nevertheless, Financials, Utilities, and Telecommunication are at the bottom of the heap. Thus, investing in the better-performing sectors gives you some protection from risk.

Of course, you can’t be certain whether a sector that is currently doing well will continue to do so in the future. Here, you will need to determine how a sector has been performing over a period of time. By looking at these various intervals, you will be able to see whether the performance is increasing or decreasing. Furthermore, you should also be able to make an educated guess regarding the growth or depreciation of the sectors over the next few years.

4. How to Spread Your 20K Around

It has already been mentioned that there is a certain level of risk involved when it comes to investments, especially if you are hoping to make some real gains. This is why investors constantly need to be on the lookout for a way to minimise this level of risk. The most useful way to do this is to diversify your investments.

By doing this, you spread your money across sectors and asset classes. The main concept behind diversification, though, is to invest in assets that perform contrary to one another. This way, if one of your assets are performing poorly, you can be fairly certain that the other set of investments will be making you a profit. You are then able to balance out your losses.

This leads to the question of how you should diversify your portfolio – namely, how much of your 20K should you place with each of your investments? In this situation, there may be a rule of thumb that you can follow, at least to a certain extent. So, subtract your age by 100 and the answer will tell you just how much to invest in at each opportunity. If you need more, here are 50+ passive ideas and examples.

For instance, let’s imagine that you are 30 years old. This gives you:

100 – 30 = 70

This means that you should put around 70 percent of your 20K towards riskier, high yield investments such as stocks.

You could invest the rest of the money in:

  • moderate
  • or low yield, stable options like bonds and savings accounts.

As the numbers show, when you are younger, you can handle more risk as it has time to even out during your lifetime. So, your investments in the high yield investments can offer a better profit. On the other hand, if you can’t afford to lose too much since you are nearing retirement, you need more low-risk investments.

Age is not the only factor. It is also about how much risk you are open to and even how much of your $20,000 you can afford to lose at any given time. If you want a more cautious financial plan, even out your investments between the high and low-yield options.

5. Growing Your Portfolio

Just because you started off investing $20,000, doesn’t mean you should be content with this amount. A good way to continue contributing more and more to your future wealth is by reinvesting any dividends or profits that you make on your initial investments.

As long as you don’t need to utilise these profits straight away, it can be helpful to reinvest them either in the same company or sector or to try another option. After all, the more you are able to invest, the greater your wealth will be by the time you are ready to retire.

In this article we answered the question: how to invest 20k Australia?

This is all you need to know regarding investing 20K in Australia. We’ve shown you the best AU $20k investment ideas we know. So, if you do have this amount saved up, you are now aware of all of the right moves that you need to make to multiply this amount. The only thing left for you to do is to actually start investing.

Coronavirus: Where I’d invest $5,000 into shares right now

Tristan Harrison | March 18, 2020 12:06pm | More on: ALU MHH WMI

The S&P/ASX 200 Index (ASX: XJO) is down again today after the latest restrictions were announced in Australia because of the coronavirus. It could be a good time to put $5,000 to work into shares.

The last time we had such a large decline of the share market during a short period of time was during the GFC. In hindsight, the GFC was one of the best times in history to buy. This may well prove to be another great time. Prices are already a lot cheaper.

The S&P/ASX 200 Index (ASX: XJO) is down again today after the latest restrictions were announced in Australia because of the coronavirus. It could be a good time to put $5,000 to work into shares.

The last time we had such a large decline of the share market during a short period of time was during the GFC. In hindsight, the GFC was one of the best times in history to buy. This may well prove to be another great time. Prices are already a lot cheaper.

Here are a few shares I’d be happy to put $5,000 into shares:

WAM Microcap Limited (ASX: WMI) – $1,500

WAM Microcap is one of the shares that I invested in last week, so I’m definitely putting my money where my mouth is here.

Small caps are the shares that usually get smashed the most in this type of environment and it’s no surprise that the WAM Microcap share price is down 32% since 21 February 2020.

However, WAM have moved the portfolio to around a third cash at the last disclosure, so there’s plenty of downside protection. When all of this is over I think WAM Microcap could be one of the top performers with their selective process of the best small cap growth shares.

Altium Limited (ASX: ALU) – $1,500

Altium is one of the best shares on the ASX. It has a fantastic balance sheet with a large cash pile and no debt, which means it should be able to sail right through this.

The electronic software business’ share price is down 12% today on no news, despite the US announcing a large stimulus package for the economy.

It has an attractive long-term future with the world’s trend towards an ‘Internet of Things’ lifestyle.

Whilst it does have a higher price/earnings ratio than most blue chips, its growth prospects are much higher. It particularly helps that it recently launched its Altium 365 service, which means people can work via the cloud – perfect timing for the call to work from home.

Magellan High Conviction Trust (ASX: MHH) – $2,000

Magellan High Conviction Trust is a listed investment trust (LIT) managed by Magellan Financial Group Ltd (ASX: MFG). It focuses on a small group of shares that it thinks are the best businesses in the world.

Its top five holdings, in alphabetical order, are: Alibaba, Alphabet, Facebook, Microsoft and Visa. These are excellent businesses that are market leaders, with good balance sheets, long-term growth prospects and very attractive unit economics. They’re the best of the best.

All of Magellan’s holdings will get through this period and come out stronger on the other side with competitors weakened.

Indeed, online shopping and online advertising could be the only way for businesses to reach most of their customers for a while.

Foolish takeaway

All three of these shares could be some of the best shares to buy during this volatile time. I’m putting my money to work because I’m optimistic about the long-term returns of the share market compared to all other asset classes.

Volatility has also turned these great ASX leaders into excellent share investment opportunities.

Our experts here at The Motley Fool Australia have just released a fantastic report, detailing 5 dirt cheap shares that you can buy in 2020.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

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Motley Fool contributor Tristan Harrison owns shares of Altium and WAM MICRO FPO. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

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