What is the Best investment in Australia?
Let's imagine for a moment you have magically come into possession of $10, 000. Perhaps you have simply been sitting on cash, too scared to invest in anything. Perhaps you have had a windfall. We won't consider the gains may be ill-gotten. In any case, what on earth is the best thing to do with it? Where could you preserve and, heaven forbid, even grow your money?
CASHThe smartest financial decision is to split your money across multiple assets. Photo: Bloomberg
This is the drop of choice for investors still smarting from the gut-wrenching market losses of the global financial crisis. And self-managed super funds - popular with those wanting investment control - are cashed up to the tune of 30 per cent or about $130 billion, Investment Trends research says.
But the cash rate has been falling since November last year and now stands 1.25 percentage points lower at 3.5 per cent. Already, the average interest you can earn from online savings accounts has dropped from a peak of 6.2 per cent in August last year to 5.21 per cent today, Mozo says. And it is not much better with term deposits; one-year rates have fallen from 6.11 per cent in April last year to 4.85 per cent. Talk is also that we are about to see an end to the generous rates banks have been paying to secure deposit funding amid the global uncertainty.
Not since the last James Bond has the word been so cool as, unlike Bond himself, investors seek to avoid danger.
Just as cash has increased in appeal, so, too, have loans to governments or corporations at a designated rate of interest. But be warned: even this so-called low-risk asset carries risk, especially at the moment. And bonds are by no means created equal.
Investors worldwide are rushing into ''safe haven'' bonds, pushing prices up and yields down to record levels. (The opposite is happening in Spain.)
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What that means is that on redemption of these bonds, holders could well get back less than they paid - not really the point of a defensive investment.
Back away, right? The latest Reserve Bank bulletin looks at how the Aussie risk appetite changed pre- and post-crisis. In the five years before it, we ploughed 30 per cent more into equities (through direct shares and in our super). Since 2008, we dumped about $67 billion of that held directly in favour of deposits (which actually leapt $225 billion to 2011).
It has been a sensible approach given the RBA analysis shows average annual total returns from equities (including dividends) have been 5.5 percentage points above deposits over the past 30 years, but that has plummeted to a shocking 7.5 points below (into the negative) since 2008.
Sharemarket volatility has also doubled post-crisis and, until the Euro debt mess is resolved, will continue.
However, the income balance between shares and deposits is shifting markedly. While you can earn 5 per cent in a big bank deposit, for instance, you can get a 9 per cent gross dividend from that same bank's shares.
Slowly, surely, this pay-off will entice people back into the market. And on traditional measures of value, they would be getting bargains.
Two ways to do this: direct investment in a property that will generate rent, or indirect investment in listed property companies that manage a portfolio that generates rent. In reality, 10 grand will only get you the latter, so we'll focus on that.
Unlike residential real estate, commercial property has been solid and, despite the possibility of increased vacancies in retail and office space, prospects also look decent.
What's more, Aussie trusts have cleaned up their act and their balance sheets. Also, you can pick up many at a significant discount to their net asset value.