There are many types of investment vehicles available to choose from, with managed funds one of the most popular choices in Australia. We have outlined the four types of investment vehicles and detail the benefits of each investment.
The four types of investments include:
- Managed funds
- Direct shares (listed equities)
- Exchange traded funds
- Investment bonds.
What is a managed fund?
Managed funds pool the money of many individual investors. This money is then invested by a professional fund manager in different asset classes (eg shares, property and bonds) in line with the fund’s stated investment objectives. When you invest in a managed fund, you are allocated a number of ‘units’, rather than shares, with each unit representing an equal portion of the market value of the portfolio of investments.
What are the advantages of managed funds?
- They provide the right amount of control without the time-consuming hands-on management required by direct investing.
- Access to sophisticated investments: investing in a managed fund gives you access to a range of investments that may not ordinarily be available or affordable to you as a single investor.
- Your money is managed by experts who have access to information, research and investment processes not readily available to individuals.
Investing in shares
A shareholding is part ownership of a listed company. The shareholder receives dividends or income from their share investment and the company is able to raise valuable equity capital to fund its growth and operations. The shares can then be sold on the stock exchange and a potential capital gain realised if the share price rises.
What are the advantages of shares?
- Flexibility and liquidity: shares offer real-time pricing, this means you can buy or sell your shares easily and quickly at any time whenever the market is open.
- Low cost: shares are typically a cheaper investment option to manage due to lower operating costs and management fees.
- Capital growth and dividends: shares offer capital growth and maximum control over capital gains realised, as you can make the decision when to sell.
Investing in exchange traded funds
An Exchange Traded Fund (ETF) is an investment fund traded on stock exchanges. An ETF can hold assets such as shares, commodities or bonds. ETFs usually track the performance of an index, giving investors access to an instantly diversified portfolio. ETFs are open-ended funds, meaning investors have the flexibility to buy or sell shares at any time. The premise of an ETF is that you are buying into a selection of companies in one hit, rather than individually picking each company to invest in.
What are the advantages of ETFs?
- Can be managed as a passive investment, which is cost effective and your returns will more than likely match the market.
- Using ETFs as part of an actively managed portfolio can assist with reducing costs and enhancing portfolio diversification.
- ETFs are a good way to gain exposure to international shares and foreign currencies.
Investment bonds can provide you with a simple, tax-effective, long term investment. They are also known as insurance bonds, and are ‘tax-paid’ life policy investments. This means the life company pays the tax on the investment earnings.
What are the advantages of bonds?
- They offer many tax advantages, particularly for investors on a marginal tax rate greater than 30% as this is the maximum rate the life company pays on its investment earnings.
- You can switch between investment options without tax consequences.
- They offer estate planning benefits as proceeds can be paid to any beneficiary (not just dependants) tax-free. Bonds are flexible as you can nominate more than one beneficiary and stipulate the percentage paid to each upon your death.
As with any investment, periods when markets are down or volatile are generally not a good time to make hasty decisions. If you are ever concerned about your investments, or have questions regarding what investment is best for your circumstances, please contact us on 03 5434 7600.