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Advanced investing methods
Once you’ve got the hang of all that investing lingo and have a bit more capital (money saved up or investment assets to leverage) to work with, you may want to start actively making decisions about where you want to invest.
That might look like joining an investment platform to buy and sell shares on your own or working with a broker to invest in more complex options.
Below is a bit of information about some of the different ways you may be able to get more hands-on with your investment profile, if that is what is right for you. Always do your research before investing.
In a regular super fund, your employer is adding money regularly, and the fund is pooling your cash with other members to invest in a variety of options with the goal of maximising returns for everyone. But a self-managed super fund puts the control entirely in your hands.
You choose the investments and the insurance. But while the variety can be helpful, self-managed funds do consume a lot of time to manage and are often very high risk.
Even if you get professional advice (highly recommended!), you are ultimately liable for any decisions made, so only go down this route if you’ve done your due diligence and are prepared to invest your time as well as your money.
Investing in ETFs allows you to purchase a piece or stake in a managed fund through a stockbroker – just like you would with shares. However, with ETFs you don’t own the underlying investment (the share in the specific company), just a share in the fund itself. This often gives you access to a wider variety of asset classes with each trade and can help to increase diversity in your portfolio.
They’re often low cost and fairly easy to trade through a broker, but can come with a range of risks, from market declines to currency fluctuation in international markets. So, tread lightly.
Also known as a ‘tax paid’ investment or an insurance bond, investment bonds are offered by insurance companies and basically work a bit like a superannuation fund or a term deposit where you can make regular contributions or let it sit.
It’s worth noting that they come with their own regulations – such as the 125% rule that says you can’t invest more than 125% of your previous annual contributions. This means if one year you invest $10k, you can invest up to $12,500 the following year.
However, if in the next year you add nothing, you can no longer contribute to the fund and need to start a new one (because 125% of $0 is $0), making them better for a one-off lump sum investment to be held in the long term or when you have consistent income to invest coming through.
Investment bonds are mostly considered 'tax effective' for high-income investors who already have a marginaltax rate (the most tax you’ll pay on your income) higher than 30%. While they operate similarly to super funds or ETFs – where your money is pooled with other investors across a wide range of asset classes – if you can hang onto your investment for over 10 years before you cash out then your returns will be 100% tax free.
Margin lending is a form of gearing which is when you borrow money in order to invest money. Sounds wild, but we’re not talking about your average personal loan. Margin loans are offered using your existing investment portfolio as security, with the amount you can borrow dependant on your financial position and the value of your portfolio.
So, while getting more money to invest can increase your market opportunities, it does expose you to additional risk – if the investments go south, you still have the loan to pay off and it will magnify your losses. Since you’re playing with geared funds any amount you earn is greater, but any amount you lose is greater still.
The information set out above is general in nature and has been prepared without taking into account your objectives, financial situation or needs. Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. By providing this information ANZ does not intend to provide any financial advice or other advice or recommendations. You should seek independent financial, legal, tax and other relevant advice having regard to your particular circumstances.