Harnessing Safety in Investment: A Guide for Australian Investors

Importance of safety in investment decisions

Ensuring the safety of investments is paramount for both seasoned investors and novices alike. While the potential for high returns may be enticing, the risk of losing capital looms large, underscoring the significance of prioritizing safety. In a volatile market environment, where fluctuations can erode wealth in the blink of an eye, opting for safe investments provides a shield against financial turbulence.

In a volatile economic climate, finding safe investment options is paramount for Australian investors. This article explores various avenues for safe investments, ranging from traditional options like real estate to modern alternatives like peer-to-peer lending platforms.

1. Real Estate

Real estate has long been considered a safe investment due to its inherent stability and potential for long-term growth. Here are some avenues for investing in real estate:

Rental Properties

Investing in rental properties remains a popular choice due to its potential for passive income and capital appreciation:

·        According to CoreLogic, rental yields in Australia averaged around 4% to 5% in major cities like Sydney and Melbourne in recent years.

·        Examples: Companies like Mirvac Group and Stockland Corporation Ltd are prominent players in the Australian rental property market, offering diverse portfolios of residential properties.

·        Considerations: Location plays a crucial role in rental property investment, with areas close to amenities, transport, and employment hubs often generating higher rental returns. Effective property management and tenant selection are vital for maintaining consistent income streams.

Real Estate Investment Groups (REIGs)

REIGs enable investors to collectively invest in real estate assets, providing benefits of shared ownership and professional management:

·        The Australian Property Institute estimates that there are over 2,000 property investment groups in Australia, catering to various investment preferences.

·        Examples: Australian Ethical Investment Ltd offers ethical investment options, including property investment groups focusing on sustainable and socially responsible real estate projects.

·        Diversification: REIGs offer diversification across multiple properties, reducing individual risk exposure. Professional management ensures efficient operation and maintenance of assets.

House Flipping

House flipping involves purchasing properties below market value, renovating them, and selling for a profit:

·        Domain Group reports that house flipping activity in Australia has increased in recent years, with a 20% rise in the number of flipped properties in major cities.

·        Examples: Companies like Metricon Homes specialize in renovating and flipping properties, leveraging their expertise in property development and construction.

·        Risk: While house flipping can yield high returns, it carries higher risk compared to rental properties. Success depends on careful research, budgeting, and renovation skills.

Real Estate Investment Trusts (REITs)

REITs provide an avenue for investors to access real estate assets without direct ownership:

·        The Australian Securities Exchange (ASX) lists numerous REITs, with the S&P/ASX 200 A-REIT Index delivering an average annual return of approximately 10% over the past decade.

·        Examples: Goodman Group and Dexus Property Group are leading Australian REITs, owning and managing portfolios of commercial real estate properties such as warehouses, office buildings, and retail centers.

·        Benefits: REITs offer liquidity, diversification, and regular income through dividends. Investors can buy shares of REITs through brokerage accounts, providing exposure to various real estate sectors without the hassle of property management.

2. Gold

Investing in gold can be done through various avenues, each with its own advantages and considerations:

Physical Gold: This involves purchasing physical gold in the form of coins, bars, or bullion. While owning physical gold provides a sense of security and tangibility, it also comes with storage and insurance costs. Additionally, selling physical gold may incur transaction fees and logistical challenges.

Gold ETFs (Exchange-Traded Funds): Gold ETFs are investment funds that track the price of gold and are traded on stock exchanges. Investing in gold ETFs allows investors to gain exposure to gold prices without the need to physically own or store the metal. Gold ETFs offer liquidity, ease of trading, and lower costs compared to owning physical gold. Additionally, they provide the flexibility to buy and sell shares quickly, enabling investors to capitalize on short-term price movements.

Benefits of including Gold

During periods of economic uncertainty, including gold in an investment portfolio offers several benefits:

Benefits	Description
Hedge Against Inflation and Deflation	Gold has historically served as a hedge against both inflation and deflation. Its value tends to rise during inflationary periods, preserving purchasing power, while it can also act as a store of value during deflationary periods.
Portfolio Diversification	Gold’s low correlation with traditional assets like stocks and bonds makes it an effective portfolio diversifier. When other investments experience volatility or downturns, gold’s value may remain stable or even increase.
Global Store of Value	Gold is recognized and valued worldwide, providing a universal store of value. During times of geopolitical tension or macroeconomic uncertainty, investors often seek the safety and stability of gold as a financial haven.
Preservation of Wealth	Gold’s intrinsic value and scarcity make it a reliable asset for preserving wealth over the long term. Unlike fiat currencies, which can be subject to devaluation, gold has maintained its value over centuries.

3. High-Yield Savings Accounts

High-yield savings accounts are a popular choice for conservative investors seeking safety and liquidity. Here’s what you need to know:

Best High-Interest Savings Accounts:

Account Name	Base Rate	Conditions
Freedom Saver (Australian Unity)	5.20%	Balances up to $50,000. A linked transaction account is required with no ongoing account-keeping fees.
ANZ Save (ANZ Plus)	4.90%	Balances up to $250,000. A linked transaction account is required with no ongoing account-keeping fees. Exclusive to the ANZ Plus app.
Simple Saver Account (Bank of Queensland)	4.85%	Balances up to $5 million. Exclusive to the myBOQ app with no ongoing account-keeping fees.
MoneyMAX Account (Unity Bank)	4.75%	A linked transaction account is required with no ongoing account-keeping fees. Membership fee of $10.
Online Saver Account (Orange Credit Union)	4.75%	Balances over $1000. A linked transaction account is required with no ongoing account-keeping fees.
Savings Account (Macquarie)	4.75%	Balances up to $1 million. A linked transaction account is required with no ongoing account-keeping fees. An introductory rate of 5.35% for the first four months is available.
HomeME Savings Account (ME)	5.55%	Balances up to $100,000. Conditions: deposit at least $2000 monthly into a linked SpendME account. A linked SpendME transaction account is required with no ongoing account-keeping fees. Exclusive to ME’s GO app.
Growth Saver (MOVE Bank)	5.50%	Balances up to $25,000. Conditions: deposit at least $200 and make no withdrawals monthly. No ongoing account-keeping fees.
Savings Maximiser (ING)	5.50%	Balances up to $100,000. Conditions: deposit at least $1000 into any personal ING account and make at least five settled purchases with an ING debit or credit card monthly. A linked transaction account is required with no ongoing account-keeping fees.
Future Saver Account (Bank of Queensland)	5.40%	Balances up to $50,000. Conditions: must be 14–35 years old. Deposit at least $1000 monthly and make five settled, eligible transactions from a linked Everyday Account. A linked transaction account is required with no ongoing account-keeping fees. Exclusive to the myBOQ app.
Saver Account (AMP)	5.40%	Balances up to $250,000. Conditions: deposit at least $1000 monthly. A linked transaction account is required with no ongoing account-keeping fees.
ANZ Plus Save (ANZ)	4.90%	See above. No ongoing account-keeping fees.
Progress Saver (ANZ)	4.25%	Conditions: deposit at least $10 monthly and make no withdrawals or transfers. No ongoing account-keeping fees.
Online Saver (ANZ)	1.50%	No ongoing account-keeping fees.
GoalSaver (CBA)	4.90%	Conditions: make at least one deposit and have a growing account balance monthly. No ongoing account-keeping fees.
NetBank Saver (CBA)	2.35%	No ongoing account-keeping fees.
Reward Saver (NAB)	5.00%	Conditions: make at least one deposit and no withdrawals monthly. No ongoing account-keeping fees.
iSaver (NAB)	2.00%	Introductory rate of 5.00% for the first four months. No ongoing account-keeping fees.
Life (Westpac)	5.00%	Conditions: make at least one deposit and have a growing account balance monthly. No ongoing account-keeping fees.
eSaver (Westpac)	1.10%	Introductory rate of 5.00% for the first five months. No ongoing account-keeping fees.

·       

Benefits: High-yield savings accounts offer competitive interest rates, FDIC insurance protection, and easy access to funds.

·        Considerations: Look out for account minimums, withdrawal restrictions, and fees that may affect your overall returns.

4. Blue-Chip Stocks

Blue-chip stocks are shares of large, well-established companies with a proven track record of stable performance. Here are some examples of blue-chip stocks listed on the Australian Securities Exchange (ASX):

Stock Code	Company	Market Cap	Index Weight	Dividend Yield TTM	5-year Avg Dividend Yield	Payout Ratio
ASX:BHP	BHP Group Limited	A$ 239.14B	10.95%	8.48%	6.7%	90.26%
ASX:CBA	Commonwealth Bank of Australia	A$ 173.95B	8.03%	4.04%	4.60%	66.68%
ASX:CSL	CSL Limited	A$ 125.08B	6.58%	1.33%	1.06%	51.57%
ASX:NAB	National Australia Bank Limited	A$ 87.43B	3.53%	5.75%	5.53%	66.58%
ASX:WBC	Westpac Banking Corporation	AUD$ 75.02B	3.53%	6.26%	5.55%	71.67%

5. Australian Government Bonds

Australian Government Bonds offer a fixed rate of return through their Coupon Interest Rate, which is determined when the bond is initially issued by the Australian Government. This rate remains constant throughout the lifespan of the bond.

For instance, let’s consider a Treasury Bond with a 5% Coupon Interest Rate. This means that investors will receive $5 per year for every $100 Face Value amount of the bond they hold. These interest payments are typically made in semi-annual installments, with each payment totaling $2.50 every six months.

Examples of the two different types of Exchange-traded Australian Government bonds:

1.    Exchange-traded Treasury Bonds (TBs):

o   Exchange-traded Treasury Bonds are fixed-rate bonds issued by the Australian Government. They pay a fixed rate of interest, known as the Coupon Interest Rate, over the bond’s term.

o   Example: A 10-year Exchange-traded Treasury Bond with a Face Value of $1,000 and a Coupon Interest Rate of 3.5%. This bond would pay investors $35 in interest annually ($1,000 * 3.5%), distributed in semi-annual payments of $17.50 each.

2.    Exchange-traded Treasury Indexed Bonds (TIBs):

o   Exchange-traded Treasury Indexed Bonds are inflation-linked bonds issued by the Australian Government. The interest payments on these bonds are adjusted based on changes in the Consumer Price Index (CPI), providing investors with protection against inflation.

o   Example: A 5-year Exchange-traded Treasury Indexed Bond with a Face Value of $1,000 and a fixed Real Coupon Interest Rate of 1.5% plus inflation adjustment. If the CPI increases by 2% over a year, the bond’s interest payment for that period would be adjusted to reflect this increase, providing investors with a higher return to compensate for the impact of inflation.

Benefits of investing in Australian Government Bonds

Investing in Australian Government Bonds (AGBs), including both Exchange-traded Treasury Bonds (eTBs) and Exchange-traded Treasury Indexed Bonds (eTIBs), offers several benefits:

1.    Safety and Security: AGBs are backed by the Australian government, making them one of the safest investment options available. The likelihood of default is very low, providing investors with a high level of capital security.

2.    Steady Income: eTBs provide fixed interest payments, offering investors a predictable stream of income over the bond’s term. This can be particularly attractive for investors seeking stable returns.

3.    Inflation Protection: eTIBs provide interest payments that are linked to inflation. This means that as the cost of living rises, the value of the bond’s interest payments also increases, helping investors maintain purchasing power over time.

4.    Diversification: AGBs can serve as a valuable diversification tool within an investment portfolio. Since they typically have low correlations with other asset classes such as stocks, they can help reduce overall portfolio volatility and enhance risk-adjusted returns.

5.    Liquidity: AGBs are highly liquid investments, especially the exchange-traded varieties. Investors can easily buy and sell them on the secondary market, providing flexibility to adjust their investment positions as needed.

6.    Tax Benefits: Depending on the investor’s tax situation, AGBs may offer tax advantages such as tax-exempt interest income or favorable tax treatment on capital gains.

7.    Maturity Guarantees: AGBs guarantee a rate of return if held until maturity. This feature provides investors with certainty regarding the final value of their investment, making them suitable for long-term financial planning goals.

8.    Accessibility: AGBs are accessible to a wide range of investors, including individuals, institutions, and foreign investors. This accessibility allows investors of varying sizes and risk appetites to participate in the bond market.

6. Exchange-Traded Funds (ETFs) in Australia

ETFs offer a convenient way to invest in a diversified portfolio of assets. Here are some popular ETF options available in Australia:

Fund Name	Mgmt Fee	Details
BetaShares Australian Top 20 Equity Yield Maximiser Fund (managed fund)	0.76%	Provides exposure to all S&P/ASX 20 shares with attractive quarterly income surpassing underlying shares’ dividend yield.
eInvest Income Generator Fund (MF)	0.80%	Aims to provide regular monthly income and gross yield above benchmark index.
ETFS S&P/ASX 300 High Yield Plus	0.35%	Covers top 40 stocks with highest shareholder yields from S&P/ASX 300 Index in the past year.
IML Concentrated Australian Share Fund	0.99%	High conviction active ETF investing in select high-quality, undervalued ASX-listed companies, typically above A$500 million market cap. Includes 10.25% performance fee.
iShares S&P/ASX Dividend Opportunities	0.30%	Provides exposure to high yielding Australian common stocks while ensuring diversification, stability, and tradability.
Russell Australian Responsible Investment	0.45%	Tracks Russell Australia ESG High Dividend Index, weighted towards companies with positive environmental, social, and governance characteristics.
Russell High Dividend Australian Shares	0.34%	Consists of Australian blue-chip companies with a focus on high expected dividend yields.
S&P/ASX 200 Covered Call ETF	0.60%	Utilizes covered call strategy to enhance yield by selling at-the-money call options on S&P/ASX 200 Index quarterly.
SPDR MSCI Australia Select High Dividend Yield Fund	0.35%	Aims for higher than average dividend yield compared to ASX average.
Vaneck Vectors Morningstar Australian Moat Income	0.35%	Seeks performance of top 25 highest dividend paying ASX-listed securities (excluding A-REITs) meeting Morningstar’s criteria.
Vanguard Australian Shares High Yield	0.25%	Aims for exposure to companies with higher forecast dividends relative to other ASX-listed companies.

 

7. Peer-to-Peer Lending in Australia

Peer-to-peer lending platforms offer an alternative way to invest in personal and business loans. Here are some prominent platforms in Australia:

Society One stands out as Australia’s pioneer in the peer-to-peer lending landscape, presenting individuals with opportunities to access unsecured loans extending up to $50,000.

MoneyPlace enters the scene, offering individuals fixed-rate unsecured loans tailored to a variety of purposes, providing borrowers with stability and predictability.

Formerly known as RateSetter, Plenti steps in, offering personal loans up to $50,000, adorned with flexible terms to suit diverse financial needs and circumstances.

OurMoneyMarket emerges as a key player, distinguishing itself with low-rate personal loans adorned with competitive fixed rates, empowering borrowers with financial flexibility.

Targeting the SME sector, ThinCats Australia specializes in providing secured business loans, catering to the unique needs and challenges faced by small and medium-sized enterprises.

OnDeck steps up as a technology-driven lending solution, extending its services to established businesses, leveraging innovative platforms to streamline the lending process.

Bigstone steps into the financial landscape, extending a helping hand to small and medium-sized businesses by offering tailored finance solutions to fuel growth and development.

Marketlend emerges as a valuable resource, facilitating business loans specifically designed for acquiring vehicles, equipment, and facilitating expansion plans, contributing to the growth and prosperity of businesses across various sectors.

Factors Affecting Investment Safety

Economic Stability

·        Gross Domestic Product (GDP) Growth: A robust and growing economy typically offers a favorable environment for investments, indicating stability and potential returns.

·        Employment Rates: Low unemployment rates signify a healthy economy, instilling confidence in investors regarding consumer spending and market demand.

·        Inflation Levels: Moderate inflation rates are conducive to investment growth, as they prevent the erosion of purchasing power and maintain stable market conditions.

·        Interest Rates: Central bank interest rate policies influence borrowing costs, investment yields, and overall economic activity, impacting investment safety.

Political Climate

·        Government Stability: Political stability and continuity of governance foster investor confidence, reducing the risk of sudden policy changes or disruptions.

·        Policy Environment: Investor-friendly policies, including taxation, trade regulations, and fiscal incentives, create a conducive atmosphere for investment growth and stability.

·        Geopolitical Risks: Domestic and international geopolitical tensions can introduce uncertainty and volatility into financial markets, affecting investment safety.

Regulatory Frameworks

·        Investor Protections: Strong regulatory frameworks, including securities laws and financial regulations, safeguard investor interests and promote transparency and accountability in the markets.

·        Compliance Standards: Adherence to regulatory requirements ensures fair and ethical practices within the investment landscape, enhancing investor trust and confidence.

·        Regulatory Oversight: Effective regulatory oversight and enforcement mechanisms deter fraudulent activities and market manipulation, bolstering investment safety.

Market Volatility

·        Price Fluctuations: Market volatility, characterized by rapid and unpredictable price changes, introduces uncertainty and risk into investment decisions, impacting safety.

·        Asset Correlations: Understanding the correlations between different asset classes and their behavior during market fluctuations is crucial for diversification and risk management.

·        Systemic Risks: Risks inherent to the broader financial system, such as liquidity crises or contagion effects, can amplify market volatility and jeopardize investment safety.

The Bottom Line

Safe investment options in Australia span a wide range of asset classes, catering to investors with varying risk appetites and investment goals. Whether you prefer traditional avenues like real estate and government securities or modern alternatives like ETFs and peer-to-peer lending, careful consideration and due diligence are essential for building a resilient investment portfolio.

Resource : https://www.starinvestment.com.au/top-safest-investment-highest-return-australia/