A myriad of options exist for people who are contemplating becoming more active on the investing front.
I say “more active” because all of us are already investors in one way or another. The choice of bank with which we deposit our money and the type of superannuation fund we are members of (including our investment options within these super funds) represent types of investments.
Put simply, investing is putting your money to work to help you achieve your personal goals, and it is always worthwhile to make the time to invest in your future.
In response to increasing interest from our clients about the full range of investment options available to them, upcoming Falconer Advisers’ blogs will focus on a variety of investment options, explaining in detail what they are and how to make best use of each option – assuming of course it is the best option for you.
Because so many investment options exist, it is crucial to do your research and make sure that any decisions you make form part of your long-term financial planning. At Falconer Advisers, we are experts at working with people on such planning as well as the implementation and ongoing management and review of their investment strategies.
To help you get started, here is an overview of just a few investment options.
Managed Funds
A managed fund is one type of managed investment scheme. In a managed fund, your money is pooled together with other investors. An investment manager buys and sells shares other assets on your behalf. You are usually paid income or distributions periodically. The value of your investment will rise or fall with the value of the underlying assets.
Managed funds can be a good investment as they offer diversification and access to a broad range of assets or markets.
Speaking of managed funds, it is also well worth being aware of ‘mFunds’. An mFund product is an unlisted managed fund admitted for settlement under the Australian Securities Exchange (ASX) Operating Rules and available to investors through the mFund Settlement Service.
Exchange Traded Fund
An Exchange Traded Fund (ETF) is an investment fund traded on stock exchanges much like stocks. An ETF holds assets such as stocks, commodities, or bonds and trades close to its net asset value over the course of the trading day. Most ETFs track an index such as the ASX 200 .
The benefits of ETFs include diversification because an ETF can give exposure to a group of equities, market segments or styles. In comparison to, say, a single stock, an ETF can track a broader range of stocks. Because ETFs track an index, they normally have lower fees compared to actively managed investment funds.
Exchange Traded Bond Units
Exchange Traded Bond Units (XTBs) offer a fixed income investment opportunity for all investors. XTBs bring together the income and capital stability of corporate bonds with the transparency and liquidity of the ASX market.
Each XTB gives you exposure to a specific underlying bond and gives you the advantage of being able to buy and sell on the ASX at any time, just like shares (subject to the liquidity of the underlying bond). XTBs will generally pay a higher rate of interest than term deposits and cash based products.
Listed Investment Companies
Listed investment companies (LICs) are essentially listed managed funds where the investor owns shares in the company that holds the investment portfolio rather than units in a fund or the underlying assets.
Whereas Exchange Traded Funds typically track the performance of an index, LICs aim to beat the market through an actively managed portfolio. The main reasons for investors buying LICs are capital growth and increasingly for yield (dividend income).
Shares
A share is simply part ownership of a company. Shares are also known as equities, stocks or securities.
The benefits of investing in shares include potential capital gains from owning an asset that can grow in value over time, potential income from dividends and lower tax rates on long-term capital gains.
Bonds
Bonds are a medium to long-term investment issued by governments and companies which pays a regular, fixed interest amount for the term of the investment. The invested funds are repaid at the end of the term.
Bonds that you can trade on a secondary market such as the ASX are known as listed or exchange-traded bonds. Listed or exchange-traded bonds give you the flexibility to sell the investment if your circumstances change. In general, bonds are less volatile than other investments such as shares.
Hybrid securities
Hybrid securities are a way for banks and companies to borrow money from investors in return for interest payments. They are offered by well-known companies and blend some of the features of debt (fixed interest) and equity (shares).
Each investment will differ in terms of conditions, time rates and interest rates. They are generally traded on a secondary market such as the ASX.
Instalment warrants
A warrant is a structured financial instrument issued by a bank or other financial institution, traded on the ASX. Warrants provide investors an alternative way to gain exposure to a variety of underlying assets, such as shares, to achieve a desired result.
Instalment warrants allow investors to buy shares (or other securities) over a period of time, making an initial payment and paying the balance later. Investors are charged interest and fees on the outstanding amount but get the immediate benefits of owning the whole investment, such as receiving dividends.
These are but a few of the myriad investment options available to Australian investors. To find out more about investing look out for our upcoming blogs, call me on 03 96004111 or email scott@falconeradvisers.com.au.