Five set-and-forget investment options for your money
It's a conundrum: you're sick of seeing your money languishing away earning minimal interest in a transaction account, but you don't have the time, or the desire, to actively invest it at present.
Fortunately, there are a number of relatively simple options that will allow you to put your money to work and, all things going well, help it grow.
That's not to say that you won't want to do your research first, but the following five options may fit the bill if you're looking for an accessible and low-maintenance way to invest your money.
1. Open a no-strings savings account
- Pros: Funds are easy to access; amounts up to $250,000 are guaranteed
- Cons: Interest rates can fluctuate
I've you've missed the news, savings account rates are back on the rise thanks to a rapid increase in the cash rate. In fact, there are plenty of banks offering rates above 4% at present. Typically though, the highest rates around are available with 'bonus' savings accounts - accounts that require savers to meet minimum monthly requirements to achieve the maximum rate.
That's not everyone's cup of tea though, so an alternative that won't make you jump through hoops is a 'no-strings' savings account where you'll get the top rate no matter what.
While they aren't quite up there with some of the bonus rates around, there are a number of competitive 'no strings' options, including Australian Unity's Freedom Saver (3.75%) and Macquarie Bank's Savings Account (3.70%).
An added bonus of choosing to put your money in a savings account is that deposits of up to $250,000 per person, per institution are guaranteed by the government under the Financial Claims Scheme.
Tip: To make topping up your savings even easier, set up automatic transfers (if your bank allows it) each month or pay cycle to add to your savings from your transaction account.
2. Use a micro-investing platform
- Pros: Low barrier access to equities
- Cons: Fees; investment could go up or down
Investing in the likes of shares and exchange traded funds (ETFs) has arguably never been more accessible, but for those looking to dabble in the world of equities for the first time or to invest as little as possible, micro investing platforms like CommSec Pocket, Pearler Micro, Raiz and Spaceship could be among the simplest and most accessible options.
These platforms allow users to invest fractionally - rather than buying shares directly - in curated portfolios or ETFs, generally via small recurring or lump sum investments from as little as $1 to $5 (although CommSec Pocket has a minimum $50 investment).
Like all equities, investing through micro investing platforms comes with the risk that you could lose money if the price of the portfolio or ETF falls. It's also worth noting that all of the platforms currently either come with brokerage costs or a monthly service fee.
Tip: If you're looking to simplify the investing process, each platform listed above allows users to set up regular automatic investments, while both Pearler and Raiz have features which automatically round up transactions from your transaction account to the nearest dollar and invest the difference.
3. Stash it in a term deposit
- Pros: Guaranteed return; amounts up to $250,000 are guaranteed
- Cons: Penalties for early access
When it comes to set-and-forget options for growing your money, a term deposit could be one of the simplest of all, because all you'll need to do is open an account, deposit the money and then sit back and wait for the term to finish before you collect your initial deposit plus interest.
Another benefit of term deposits is that because you know your interest rate up front, you can calculate exactly how much you'll earn over the investment period. And the good news on that front is that term deposit rates have jumped in recent months, with plenty of banks offering rates of 4% and higher to savers willing to lock their money away for at least 12 months.
Many banks do have minimum deposit requirements for their term deposits though, which are typically $1000 or $5000, but can be higher. And like savings accounts, term deposits of up to $250,000 per person, per institution are covered under the Financial Claims Scheme.
Tip: It's worth bearing in mind that some term deposits will automatically roll over once they hit maturity, so if you want to withdraw your money without penalty make sure you do so beforehand.
4. Invest in peer-to-peer lending
- Pros: Higher potential returns than some other options
- Cons: Risk of borrowers missing payments or defaulting
As the name suggests, peer-to-peer lending is all about matching up would-be borrowers with investors who are willing to loan money - a process that is facilitated by a handful of Australian peer-to-peer lending platforms (for a cut) like Plenti and SocietyOne.
One of the benefits of peer-to-peer investing is that the returns can be higher than those available with deposit accounts. For instance, SocietyOne's current target investment return is 4-6% per annum while Plenti's is 4.8-7.5% depending on the market you choose. And once you've registered and selected your investment option, there's relatively little upkeep involved beyond waiting for the repayments to arrive.
However, peer-to-peer lending is not without risk. There's always the possibility that borrowers could be late making their repayments, or default on the loan altogether, meaning you lose some or all of your investment.
Tip: If you're happy with how things are going and want to keep your money invested, you could consider opting to have it automatically reinvested, though it's always worth ensuring that you're earning a competitive rate.
5. Salary sacrifice into your super
- Pros: Tax-effective way to boost superannuation
- Cons: Harder to re-access the money should you need to
If you've got a longer-term mindset then another option is to invest money into your super via salary sacrificing which is an arrangement you can go into with your employer whereby you elect to have a share of your pre-tax income directed into your super rather than receiving it as part of your salary.
There are a couple of benefits to salary sacrificing, including being able to boost your superannuation balance while only paying 15% tax on your contributions as opposed to your normal income tax rate if you were to contribute post-tax. It will also serve to lower your taxable income, meaning you could end up paying less tax, although this is a result of you reducing your take-home pay.
In most cases, getting started is as simple as contacting your HR or payroll department, but after that, you can sit back and watch your additional sacrifices roll in. And should you need to adjust the amount you're sacrificing or stop it altogether, you can always do so by talking with your employer.
Tip: If you want to avoid paying any additional tax make sure that you don't exceed the current concessional contributions cap of $27,500 for each financial year. This applies to salary sacrificing and any other personal contributions.
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