What Are Different Investment Classes?

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Investment Classes

Australian marketplace offers different types of investment classes that an investor may look at while devising an appropriate investment strategy. The strategy may be formulated as per short term or long term view on investment and the outcome that is being foresighted. The key investment classes include:

Cash Investments: These are the most common form of investments in Australia that the investor can use, and the category entails products such as term deposits, savings bank accounts and cash Management Trusts. They are meant for those investors who have an investment outlook for a shorter term. While they do provide safety to the investments but they usually offer slight income and no capital growth; and sometimes may be risky if we consider the long-term view. This is because macro factors such as inflation may erode away the overall value of the investment.

Fixed Interest: This includes government bonds, corporate bonds, mortgages and hybrid securities. The investment in bonds means that the investors “loan” their money for a fixed duration at a predetermined interest rate (either a fixed rate or at a fixed level above a variable rate); and they will receive a continuous income stream through this regular interest payments. The investors will also get the repayment of the initial investment on maturity. The Bonds are traded in the market at prices that reflect the current prevailing interest rates. If the interest rates fall, the investors can continue to earn higher initial rate of interest until maturity. Bonds generally provide higher return than cash investments, but they also carry higher risk. Meanwhile, the hybrid securities and products comprise of some of the features of a bond investment and some of the features of equity investment.

Shares: Shares are also known as “equities” or “stocks”, and they represent the ownership in a company but form one of the riskiest asset classes. When an investor buys a share, he/she becomes a part owner in the company and gets entitled to share in the company’s future profits. The shares provide growth to the investors in different ways. When the overall value of the company increases, the value of the shares also rises. The companies can then elect to pay part of their profits to shareholders as an income payment, rather than reinvesting all profits back into the company. These income payments are known as “dividends”. Many of the investors want to invest in companies that have high dividend  yield. One of the major advantages of dividends is that they carry tax advantages. If the investor or trader invests in an Australian company that has already paid capital gain tax on its profits, tax credits (known as franking credits) may be attached to the dividends the company pays to the investors. These franking credits are used to reduce the tax payable by the investor. Further, shares held for more than one year may qualify for a 50% discount on any capital gains tax payable. The investors should invest in this asset class with a long term view, and can achieve higher investment returns.

Property: Property is one asset class that includes direct investments in residential, industrial and commercial property and can also include indirect investment in listed property vehicles such as REITS. The investment in this class is generally best suited to investors who do not need money immediately, have a long-term investment timeframe (over 5-7 years), and will able to meet mortgage repayments in the scenario of rise in interest rates.

Alternative Assets: These include Hedge Funds, Private Debt, Private equity, Infrastructure etc. These investments are potentially very effective in levelling the long term returns of a portfolio.

Managed funds: Managed funds work by pooling individual investors’ money together and investing in a number of different assets (which may include shares, property, bonds and fixed interest). There are professional fund managers, who decide what percentage of the fund should be invested in each asset class, and also which countries, industries and companies have the best prospects for good returns. Each investor receives “units” in the fund, and each unit represents a mix of all the underlying assets.

Superannuation: Superannuation is an investment vehicle that has been set up specifically to hold the retirement savings. Depending on the super fund, an investor can invest in a wide range of underlying assets, comprising of shares, property, bonds, fixed interest and managed funds. This is a good investment option for the savings made solely for funding the retirement and people who are looking to reduce their tax.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkinemedia.com and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.