When it comes to millennial investing, the earlier you start, the better. Given the significant volatility, we have seen in the investment markets recently, considering lower-risk investment options has increased in importance as investors consider alternatives.
Introduction – Millennial investing
The following investments offer lower risks than shares and may provide some potential ‘peace of mind’.
- Savings accounts
- Term deposits
- Bonds – Government and Corporate
- Bullion – Gold and Silver
- Property – fractional investing
Savings Accounts for Millennials to Invest
Now that interest rates are rising following recent historic lows, high-interest savings accounts offered by banks, credit unions, or building societies are becoming more appealing.
Providing certain conditions are met, say a minimum deposit, specific number of monthly transactions, monthly fee, and the nominated savings balance grows. A higher rate of interest can be earnt. For example, ING’s Saving Maximiser is currently paying 4.55% p.a. at the time of writing.
This investment allows you to earn interest on an allocated amount of money you lock away for a set period. For example, you invest $5,000 into a term deposit for six months, during which time you receive interest on the savings, which you could pay out monthly, or at the end of the term.
The interest rate earnt may depend on which payment method is chosen. You may choose to access your money before the end of the term, but you will likely face a penalty fee, a reduced rate of interest or some other charges.
Bonds – Government and Corporate
Bonds involve lending money to governments or companies in Australia (who will use this borrowed money to invest), in return for regular interest on your money, after a certain period. Investors will receive their money back when the bond reaches maturity.
Australian Government bonds (or treasury bonds) are issued on sovereign debt by the Australian government and guarantee a rate of return if held to maturity.
Companies issue corporate bonds to fund projects. It is essential to consider the credit risk of corporate bonds before any purchase because if the company goes out of business, you won’t get your coupon payment, and you may not get your face value back.
Minimum investments are usually much higher with these investments and can range anywhere from $10,000 up to $50,000.
Bond interest can be paid as (1) Fixed rate – the interest rate is set when the bond is issued and does not change. Offers fixed coupon payment and steady income stream. (2) Floating rate – coupon rate changes when the interest rate goes up or down over the bond term. (3) Indexed bond – the interest rate is indexed against the Consumer Price Index (CPI), which protects investors against inflation as coupon payments increase in line with inflation.
Bullion – Gold and Silver
Gold and silver are often considered a ‘haven’ and may provide stability and diversification to an investment portfolio during market volatility. It also offers investors wealth preservation and usually delivers a good hedge against rising inflation. It also provides ‘an inverse correlation’ to other assets. Gold or silver may produce enhanced returns if share markets fall due to uncertainty and inflation.
You can buy gold and silver from bullion depositories such as Perth Mint or ABC Bullion, and they offer savings plans, where you can invest with as little as $50 per month, similar to a savings account. Alternatively, you can purchase coins or jewellery directly, gain exposure via an Exchange Traded Fund (ETF), or invest indirectly by buying shares in companies that mine, refine and trade these precious metals. Note, though, that share prices are affected by a company’s profitability, environmental and geo-political footprint, and regulatory risk.
Property – Fractional Investing
One of this investment’s most significant advantages is the low entry barrier compared to traditional property investment. Investors don’t need to save 10-20% of a property’s value as a deposit – they can own a share of a property for a minimal initial outlay. Think of it as a form of property crowd-funding!
There are several options available for buying an investment property through factional ownership, but as with all investing, it’s a good idea to do your research before jumping in. Some offer relatively low-risk options, though, because the amount you invest is low. Typically, they generate a low ongoing income and are primarily positioned for long-term capital growth.
Some valuable tips to help you get started and to assist with reducing risk:
- Do your research – think about how much you want to or can afford to invest, your options, and what types of investments you could use to help you reach your goals.
- Know your risk profile – determine how much risk you’re willing to take and what investment options might fit within this. Different investments carry different levels of risk, so it’s essential to understand the risk involved in each investment product or strategy you’re considering.
- Speak to an adviser – if you have questions or want more help or information, speak with a financial adviser.
- View ASIC’s MoneySmart website – for valuable resources.
* It is worthy of note, though, that with ‘lower risk’ comes ‘lower returns’ and that it could be argued that no investment is 100% safe. With any investment, your capital is at risk. Whether within or outside of super, even if that risk is a loss of ‘purchasing power’ over time as inflation increases.
The content of this article is intended to provide a general guide to the subject matter. You should seek specialist advice about your specific circumstances.
Vogue Advisory Group – helping with millennial investing
Finally, if you are using or thinking about using a financial adviser, now may be a good time to do so, as they can assist you with reviewing your financial goals and strategies and refining them if necessary.
Vogue Advisory Group can help. Our multi-disciplinary financial team provides a comprehensive suite of services, supported by our alliance partners, to provide trusted advice and deliver the transformation our clients seek.
Contact us if you require our assistance, and one of our financial advisors will help you.