Q. I am 36 years old,
single, no dependents, and have inherited $50,000 from
my grandfather. As my salary is more than adequate to
cover all my expenses plus my mortgage repayments, I
would like to invest this money for approximately ten
years. What are my options?
A. The four main options for
investment are outlined below.
Property
Residential property. You could
use your money as a deposit on a house or apartment
and repay the loan with the rent received for your
investment property. Buying an investment property
allows you to take control of your investment and may
offer capital growth in the long term. However,
because of recent steep rises in real-estate prices,
residential property may not give good rental returns
at the present time. Potential disadvantages are:
considerable research and effort is needed to find the
right property, you may have difficulty finding
tenants due to an over-supply of rental properties;
you may experience problems with tenants, such as
non-payment of rent or damage to the property; you
could incur high maintenance expenses on the property.
Listed property trust. This is
where investors’ money is pooled and invested in
business property, such as factories or office
buildings. Rental returns are usually higher than with
residential real estate but, because they are listed
on the stock exchange, prices can be erratic. Listed
property returns were strong during the September
quarter 2002.
Shares
In the past, the share market has
provided high returns to investors, but prices are
volatile. In the current unstable economic climate,
with September 11 2001 continuing to have a negative
influence on the market, and uncertainty regarding the
Iraq situation, shares are recommended only for
long-term investors.
Domestic shares. Australian
shares were resilient over the September quarter 2002
due to the overall strength of the Australian economy,
but this resilience may be tested by several factors
in the near future, for example, a slowdown in housing
construction, and the drought.
International shares. Many
factors, including corporate mismanagement, ongoing
weakness following September 11, and political
tensions regarding Iraq, have adversely affected
global shares, with global stock markets falling by
over 25 per cent in the past twelve months. This
weakness will continue in the short-term.
Investors who do not need quick
returns and are willing to think in the long-term may
consider buying shares now while prices are down,
particularly blue chip shares.
Cash investment
Bank deposits and cash management
trusts are very safe investments and allow you to
access your money quickly, but provide low returns and
no capital growth. These are the choice of very
conservative investors who do not require a high
profit.
Fixed interest investments
Term deposits and government bonds
generally have higher interest rates than bank
deposits but your money is invested for a set term and
can be difficult and expensive to access before the
expiry date. Again, these are a good choice for
conservative investors who do not require on-call
access to their money.
Spreading the risk
The best choice of all is to spread
your investment across a mixture of the above options;
this will give you a reasonable return on your money
for less overall risk. Professionally managed balanced
funds pool your money with that of other investors to
purchase shares, property and government bonds.
It is suggested that you consult a
financial adviser before making a decision. Visit the Financial
Planning Association website to find an advisor
near you.
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