How to Invest $20k in Australia: The 9 Best Strategies

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Have you recently inherited $20k, received a substantial bonus, or meticulously saved up and are now eager to put that money to work in Australia? The prospect of investing a lump sum can be both exciting and daunting, especially if you’re new to the investment world or looking to expand your existing portfolio.

Investing $20k wisely is a significant step towards financial freedom and a secure future. But with so many investment options out there, where should you begin?

In this comprehensive guide, I will walk you through several proven methods to invest $20k in Australia, from the stock market to real estate. Whether you’re a seasoned investor looking to diversify or taking the first step in your investment journey, these strategies are for people of all different financial goals and risk tolerances.

Now, let’s explore the best ways to invest $20k in Australia for maximum profit.

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 20k 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.

Pre-tax Contributions

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.

After-tax Contributions

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

I’d recommend the Vanguard Australian Shares Index ETF (ASX: VAS) or the SPDR S&P/ASX 200 Fund (ASX: STW) above any other actively or passively managed fund.

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.

Index funds are often seen as a better choice than mutual funds, and Scott Pape, the Barefoot Investor, would likely agree.

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.

You can also get $5 ($10 in September 2023) when you sign up with my referral link here.

6. Put Your Savings in a High-Interest Savings Account with ING

While there are more lucrative ways to invest $20k, a high-yield savings account does present 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. Hire a Financial Planner

Financial planners in Australia typically provide in-depth analysis and tailored investment strategies. However, the industry has seen a significant decline, with AMP, once Australia’s largest provider of financial advice, now having fewer than 1000 advisers, a 60% decline since the Hayne royal commission. Additionally, mandatory reforms have led to more than 10,000 advisers quitting the industry since 2019.

Despite this, financial planners still offer valuable services like customised investment strategies, diversification advice, and tax-efficient methods. AMP has also focused on aligning with practices that prioritise client interests.

The industry’s overall decline, including the exit of all four major retail banks from wealth management, indicates a challenging environment, suggesting a need for caution and thorough research when selecting a financial planner in Australia.

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 $20k investment and stay informed about market trends and opportunities.

What Will Investing $20k In the Stock Market Look Like Long-term?

Here is a graph showing what a $20,000 investment at age 25 would look like while growing at average stock market returns of 7% annually until age 65.

graph on investing $20k

I made this graph with a great compound interest calculator created by ASIC.

As you can see, investing $20,000 in an ASX 200 index fund at age 25 would have grown to a whopping $299,489 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 $20k in Australia

From playing the stock market to building up your retirement savings or even engaging a full-service broker, investing $20k in Australia offers abundant opportunities for financial growth.

The key to successful investing lies in aligning your investments with your long-term goals, risk profile, and lifestyle. With the information and insights provided in this guide, you’re well-equipped to take your financial future into your hands.

Happy investing, and may your money work as hard for you as you have worked for it!