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You’ve heard it all before, I’m assuming. You’re never ‘too young’, or ‘too old’ to start investing. And I’m here to tell you both are absolutely true!
But something you might not know, is that right now is a great time to invest. Here’s why.
By Julie Nipperess
In Australia, interest rates are currently the lowest they’ve been in decades. And this is fantastic news for borrowers because they’re reaping the benefits of low interest rates on loans and mortgages
The bad news for anyone with a savings account or a term deposit is that interest rates on these are very low, too. Most banks are only offering around two percent. And while many people actually prefer the ‘safety’ of a bank account, knowing where their cash is, being able to check on it often and access it when they need to, the simple fact is, it could be earning more. And when it comes to comparison with a managed fund, we need to debunk some myths.
Right now, even a conservatively invested managed fund can potentially earn around 5% per annum on average.*
What’s more, if your money is in a managed fund, you definitely know where it is and what it’s invested in. You can also check on it as often as you like, and you can access the money easily if you need it, in most cases within about 10 working days. The added benefit is that a managed fund is not difficult to set up.
As its name suggests, the fund is ‘managed’ by experts in this field and can be actively reviewed by your financial planner to ensure your fund’s ongoing performance is meeting your needs and goals.
You can have as much or as little involvement as you wish. Because, aside from initial advice when you’re deciding where to invest, this ongoing management service is exactly what you’re paying for. And a professional financial planner will know if and when you should consider making any changes. But in most cases, managed funds run pretty smoothly.
This is primarily because managed funds are designed with built-in ‘diversification’. Diversification means that you’re invested across a variety of markets, including, for example, cash, property, shares etc.
All investments are cyclical – when one industry goes up, another may be in a downturn, and the basic principle of a diversified portfolio means that because you don’t have all your money in one place, then you are well positioned to minimise risk.
Another rationale that seems to stop people from taking their money out of a savings account and investing in a managed fund is that ‘the difference in earnings is only three percent.’ On, for example, a $10,000 fund over the course of 12 months, this is going to equate to $300. Sure, it might not seem like a lot, but it’s twice what you’ll get from the bank. Money you didn’t have before. Money you didn’t have to work for…
Plus, the bank option has no potential for you to earn more, which could happen if your fund does exceptionally well. It’s also worthwhile remembering that interest rates are likely to stay low for a while so there’s little chance you’re going to get a higher return. Many of the banks, time and again, have shown they’re not willing to pass on full interest rate cuts set by the Reserve Bank. So, if the interest rates do rise, do you really think the big banks are going to be exceptionally efficient at passing the extra earnings on to savers?
Let’s be clear: managed funds are not ‘quick cash’ solutions. Yes, of course you can choose high risk, with the potential for higher return, but in doing so, you need to be comfortable with the risks. What goes up can also go down – and this risk is greater if you only intend investing for the short term.
Managed funds are designed to perform steadily and grow over time. They’re a medium to long-term investment.Managed funds can also be set up for as little as $2,000. So, if you’ve got some money sitting in a bank account, then do your research.
Remember: any decision you make to ensure your money works harder for you is a decision you’ll be glad about in the years to come. Life is for living, but it’s always important to remember that the future won’t necessarily take care of itself.
If we can answer any questions, or help you find more information, then please contact us.
*Estimated return only.
This is general advice and should not be treated as personal advice. Julie Nipperess is an authorised representative of Step Up Financial Group Pty Ltd ASFL No: 512509.