Alternative investments to bricks and mortar

Posted on April 22, 2009 by peter 
Filed under Australia Mortgage and Finance News · Tagged: , , , , ,

If you’re looking for alternatives to the usual ‘bricks and mortar’ investment strategy, the you may consider the following:

Australian shares
Part-ownership of a company listed on an Australian stock exchange. Shares provide income through capital growth and dividends, and have the advantage of a low buy-in cost, tax benefits and high liquidity. But volatility is high as they suffer the day-to-day fluctuations of the market. In a down market, they are the easiest asset for investors to sell.

Overseas shares
Stocks listed on overseas exchanges. These offer dividends and capital growth like local shares but not the tax benefits. Have provided lower returns than local shares during the past decade, with higher volatility. Adds to the diversity of investment portfolios. Can be positively or negatively affected by currency movements.
Residential property: Owner-occupied or investment dwellings. Has the benefit of low volatility and strong long-term growth. Investment properties offer negative gearing benefits but have management costs. Tenants can sometimes prove problematic. Highly illiquid, dwellings can take a long time to sell, so are not ideal for investors who need to have their cash on call.

Listed property
Also known as Australian real estate investment trusts (A-REITs). Property-focused shares listed on a stock exchange. Can be purely rent collectors or have exposure to development and funds management. With the liquidity of shares, they are easy to buy and sell. However, values are more volatile than direct property due to sharemarket exposure. Different models offer different levels of risk. Have posted weak returns on high volatility during the past decade.
Unlisted property trusts: Fund managers pool money from a set number of investors, usually to buy a targeted asset or an asset the manager already owns. They are seen as more stable than listed trusts because of their lower exposure to day-to-day stockmarket fluctuations. However, they are highly illiquid – many have set investment periods – and can have costly break fees.

Fixed interest
Investors receive a fixed amount of interest, or interest according to a formula, for periods up to about 10 years. The capital invested is returned at the end of the investment. Includes products such as term deposits, bank bills, unsecured notes and bonds offered by banks, governments and companies. These do not offer the tax benefits of property or shares and do not record capital growth. Can be illiquid, given money is usually locked in for a set period. Have posted reasonable returns with low volatility during the past decade.

Cash
Cash investments include bank accounts and term deposits. They offer stable, low-risk returns in the form of interest. Provide easy access to cash but offer no capital growth. Usually used for short periods. Have posted average returns in the past decade, on low volatility.
Managed funds: These pool investors’ money to buy assets. Investors are allocated units in the fund and receive income from dividends or interest and distributions on the sale of assets. Professional fund managers select asset allocation and give investors access to a wider variety of asset classes than they would usually have. Can be illiquid, making it difficult for investors to access funds. Have posted lower-than-average returns during the past decade, with higher volatility than property but lower than listed shares.

Commercial property
Comprises any non-residential property, including office, industrial, retail, hotel and leisure assets. Can be bought directly by individuals or a syndicate of investors. Good assets have offered strong returns during the past decade, on low volatility levels. However, assets are costly and choosing a good one can be difficult for new investors. Tenants can also be tough to manage. Commercial property assets are relatively illiquid and can take time to sell. Commercial assets have posted strong returns with low volatility during the past decade.