How to Invest $1000 in Australia: The 9 Best Strategies Revealed
Are you sitting on $1,000 and dreaming of all the ways it could grow? Well, dreams can become reality. The Australian investment landscape offers a diverse range of opportunities for both newbie investors and seasoned pros. Whether you’re keen to explore the stock market, contribute to your retirement fund, or delve into the emerging world of robo-advisors, we’ve got all the insights you need.
Here are the best ways to invest $1000 for maximum profit!
Table of Contents
1. Open a Brokerage Account
If you’re the kind of person who likes to take the wheel when it comes to financial matters, opening a brokerage account could be the first step in your investment journey. A brokerage account offers plenty of investment options – including individual stocks, bonds, ETFs, and mutual funds. Which I’ll explore in greater detail below.
Imagine this as your investment playground. It’s where you can take control and strategize your investments according to market conditions and your personal financial goals.
Remember, though, that while opening a brokerage account offers you plenty of flexibility, you will need a good understanding of financial markets and investment vehicles to be beneficial.
2. Contribute to Your Super Fund
Another great way to invest $1000 is to contribute to your super fund.
Making extra contributions is a great way to increase your retirement savings and it can reduce your taxable income.
You can ask your employer to pay part of your pre-tax income into your super account. This pre-tax payment is known as salary sacrifice or salary packaging.
These concessional contributions are taxed at 15%—likely lower than your marginal tax rate. Basically, you can reduce your taxable income while boosting your retirement savings.
There is a limit however to how much extra you can contribute to your super accounts. The combined total of your employer and salary sacrificed amounts cannot equal more than $27,500 per financial year.
However, you can also carry forward any unused concessional contributions for the last five years.
You can also contribute to your super through your after-tax income.
These payments are called non-concessional contributions because you have already paid tax on the income. You can contribute up to $110,000 of after-tax income to your super fund each financial year.
Investing in extra super contributions sets your money to grow for retirement. Note that withdrawals are typically restricted until about age 65, so invest wisely with your future in mind.
3. Exchange Traded Funds (ETFs)
Exchange Traded Funds, or ETFs, have been steadily growing in popularity. Why? Because they offer investors a way to gain exposure to a diversified portfolio of securities, like a mutual fund, but with the added benefit of being traded like a stock.
ETFs offer another advantage: they typically have lower expense ratios than mutual funds (which I will talk more about later on). That means less of your money is eaten up by fees, and more of it stays invested and growing. If you’re seeking a balance of cost efficiency, diversification, and flexibility, ETFs are worth a serious look.
Best Overall ETF in Australia
They purchase all of the stocks in the S&P/ASX 200 Index, which is a basket that holds shares from 200 of the largest companies in Australia, spanning various industries. Purchasing an S&P/ASX 200 index fund gives you broad exposure to the Australian market.
Investing in these funds is one of the best ways to grow your money with minimal effort or investing know-how. They offer low-cost, diversified, and tax-efficient exposure to Australian companies and property trusts. They also provide potential long-term capital growth and dividend income, along with franking credits.
And it’s not just me who thinks index funds are a smart choice; legendary billionaire investor Warren Buffett frequently recommends that investors of all sizes should focus on low-cost index funds, much like the ones I’ve just outlined.
4. Mutual Funds
Similar to ETFs, mutual funds offer investors an easy way to gain exposure to a diversified portfolio of securities in one fell swoop. If you prefer a hands-off approach to investing, this is an attractive option, as mutual funds are managed by professionals.
However, be aware that this convenience comes at a cost. Mutual funds often have higher expense ratios (annual fees) than ETFs, which can reduce your net returns over time. When considering mutual funds, it’s important to balance the benefits of diversification and professional management with the potential drag of higher costs.
Best Mutual Funds in Australia
Typically, Large Growth mutual funds tend to yield the highest long-term returns.
Dave Ramsey, a financial expert, suggests investing 15% of your post-tax income into managed funds as a strategy for building wealth over time.
Allocating 15% strikes a balance between the conservative approach of investing 10% and the more aggressive strategy of putting 20% of your after tax income into these funds.
5. Invest with a Robo-advisor like Raiz
Robo-advisors are automated online platforms that manage investments using algorithms. They tailor portfolios to clients’ needs and are usually more affordable than human advisors.
In Australia, Raiz Invest is a popular robo-advisor option. It lets you invest spare change from daily purchases and offers six portfolios, ranging from conservative to aggressive. These portfolios were crafted with the help of Dr. Harry Markowitz, a Nobel Prize-winning economist known for modern portfolio theory.
By investing with Raiz Invest, you can leverage Dr. Markowitz’s expertise in diversification and asset allocation, ensuring an innovative and personalized approach to your investments.
6. Put Your Savings in a High-Interest Savings Account with ING
While there are more lucrative ways to invest $1000, a high-yield savings account is a secure, risk-averse alternative. These accounts are perfect if you want your money to be readily available in case of a financial emergency.
High-yield savings accounts, unlike traditional savings accounts offered by larger banks, offer a higher interest rate. With these accounts, your money is not only secure, but it also grows at a relatively faster rate.
They also offer the same level of protection as standard savings accounts, as they are regulated by the Australian Prudential Regulation Authority (APRA), like all banks in Australia. Combined savings balances of up to $250,000 per customer are guaranteed by the Australian Government.
Consider opening an account with ING Bank, an online bank renowned for its high-interest rates. This is possible because, unlike traditional banks, ING saves significantly on operating costs as it doesn’t have physical branches. These savings, in the form of reduced overhead and staffing costs, are passed onto customers as higher interest rates and lower fees.
I should mention that I’m not affiliated with ING Bank, although I wish I was. Also remember that online banks may not offer the same personal interaction as traditional banks, which might be important for complex banking matters.
7. Term Deposits
Term deposits are fixed-term financial products offered by banks and financial institutions, allowing you to deposit yout money for a predetermined duration and earn a set interest rate.
Depending on the chosen term, interest can be paid monthly, quarterly, half-yearly, annually, or at maturity. Four of these payment options might let you access interest before the term concludes, giving you flexibility to use those funds for other investments. This depends on the bank or financial institution, so you’ll want to look into that before investing.
Term deposits are known for their guaranteed returns and low risk, which are backed by the Australian government’s Financial Services Scheme for up to $250,000 per account holder.
However, they come with limitations such as restricted access to your money during the term (you can often pay a fee to access your money early), potential missed opportunities by investing it in more lucrative ways, and the risk that inflation may erode the real value of the interest you earn.
Understanding these factors is vital when considering term deposits as part of your investment strategy.
8. Buy Bonds
Bonds, loans made by you (the investor) to a borrower (often a corporation or government entity), are generally considered lower-risk investments. The borrower guarantees to pay you back, with interest, providing a steady and predictable income stream.
However, the trade-off for the lower risk is often lower returns. Bonds have traditionally had lower returns than riskier assets like stocks. Thus, while bonds can be an important part of a diversified portfolio, they probably shouldn’t be the only component.
9. Invest with Full-Service Brokers
If you’re considering stock investment, engaging a full-service stockbroker can be beneficial. These brokers extend their services beyond simply executing buy and sell orders for securities (stocks and bonds, ect). They cater to investors seeking comprehensive professional investment advice, strategic portfolio management, and personalized service.
While this premium service does come with a higher cost, typically charging 1-2% of your total assets managed per year or a simple one-off brokerage fee.
The added expense could be a worthwhile investment if you are new to the stock market or prefer a hands-off approach to investing. By leveraging their expertise, you can make informed decisions about your $1,000 investment and stay informed about market trends and opportunities.
What Will Happen If I Invest $1,000 in Shares
Here is a graph showing what a $1,000 investment at age 25 would look like while growing at average stock market returns of 7% until age 65.
I made this graph with a great compound interest calculator created by ASIC.
As you can see, investing $1,000 in an ASX 200 index fund at age 25 would have grown to $14,974 by age 65.
You can become vastly wealthier if you continue to invest money in index funds throughout your career.
You’re not just earning interest on your original investment, but you’re earning interest on the interest you’ve earned along the way. That’s the magic of compound interest.
Conclusion on How to Invest $1000 in Australia
In conclusion, turning your $1,000 into a fruitful investment in Australia is not just a dream; it’s a potential reality.
From hands-on options like brokerage accounts to more hands-off solutions like robo-advisors, the Australian investment landscape caters to all. Your ultimate choice should align with your risk tolerance, financial goals, and investment know-how.
Remember, it’s not just about growing your wealth but leveraging the magic of compound interest to ensure a prosperous future.