Best Return on Investments - Shares, Bonds, Cash or Property?

If you’ve got money set aside and you’re looking to make it grow more effectively, it may be worthwhile looking into investing. What are some of your options?

The best ways to invest money in Australia

Generally, you could generate returns in any of the four different groups of investments known as asset classes. These are:

• Equities
• Cash
• Property
• Fixed Income

The performance of these different assets can vary significantly over time, with the theory being that those with a greater level of risk should generally perform better over the long term, compared to those investments with a lower level of risk. We look at the different asset classes and assess their long-term performance in Australia. Could looking at how each asset class has performed help you decide where to put your money? While assessing performance is natural when investing, past performance is not a reliable indicator of future performance.

→ Related: 5 simple steps to building wealth

Equities e.g. shares

Depending on the specific equities you choose, buying equities such as publicly-listed shares can provide high returns, but can also provide significant losses, hence it may be considered a risky asset class. Shares are vulnerable to sudden fluctuations in price that can result in big gains or losses in the value of your investment.

According to Vanguard Index Report, Australian shares averaged 9.8% in gross returns per annum over thirty years to June 2022. This makes it the highest-returning Australian asset class out of the four. But don’t forget, this period of time encompasses the economic downturn caused by the Global Financial Crisis and the COVID-19 pandemic.

Keep in mind that past performance is not a reliable indicator of future performance and great care is needed when making share selections. Many people pay an experienced investment adviser to do this for them.

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Is now a good time to invest in shares?

Trying to time the market is notoriously hard and in most cases impossible. Instead, it may be better to ask yourself if investing is right for you and how much money you could comfortably part with and potentially never see again.

Before investing consider you own personal circumstance, investment goals and your tolerance for risk. Also, remember that past performance is not an indicator or future performance.

Property

As reported in the Vanguard Index Report, Australian listed property averaged 9.3% in gross returns per annum over thirty years to June 2022. In 2020, Australia’s property market struggled through the pandemic, however in 2021 it rebounded in a big way, returning 33.2%.

Investing in property can be very expensive and hard to get into depending on your financial situation and where you are looking to buy, but for many, it is a favoured asset class; property is part of the ‘great Australian dream’.

Of course, the property market has its ups and downs, so it’s important to pick the right area at the right time.

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Fixed income e.g. bonds

Fixed income assets, such as government and corporate bonds are often seen as providing a relatively stable and reliable return. When purchasing a government bond, you are essentially lending money to the government which they will pay you back with interest. This interest is paid to you in regular instalments throughout the length of the bond.

In the aforementioned Vanguard Index report, Australian bonds averaged 6% in gross returns per annum over thirty years. Although, fixed income assets could be considered boring by some investors, having them as part of your investment portfolio can help to offset any losses you may have had from the share market – hence their classification as a ‘defensive’ asset.

Related Article: 4 Ways to Buy Investment Bonds

Cash e.g. savings accounts

Cash assets, such as savings accounts and term deposits, are the most liquid of all the asset classes. That is, they can be most readily converted to cash – hence the name of the asset class. Cash is the safest form your money can take but it typically generates the lowest returns. In Australia, cash averaged 4.4% in gross returns per annum over thirty years, according to the Vanguard Index Report.

In 2020, we saw the RBA cut the cash rate to an all-time low so investing in cash didn’t seem unappealing at this time. However, since the RBA has started in increase the official cash rate it could be good to have some cash in a bank account, not only for the safety it provides but because you can also access it right away when you need it. Bear in mind, though, that some providers of term deposits or savings accounts may charge a fee or reduce the interest they pay you if you decide to withdraw your money earlier than expected.

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Image source: ITTIGallery/Shutterstock.com

This is an update of an article originally published by Dominic Beattie.