Prior to the discussion on different asset classes and investing here, before making any financial decisions you should speak with a financial professional and that the below is general information only that does not take into account your personal situation or circumstances.
Now that we've got that out of the way, let's begin with the usual premise that you should start with your goals in mind.
A key point of investing and assets are that they simply are tools, do not have emotions and should be considered objects to help you get towards your financial values.
With this in mind, let's take a look at some of the asset classes.
While some say "cash is king", others have different perspectives or opinions. Depending on your point of view both can be valid and cash is generally the most liquid type of asset. It can be used to pay bills, stored in a bank account although it is a method that can show you where your financial values lie. By taking a look at where you are spending your cash, this will give you a great indication on what you value from a financial perspective. Usually seen as a lower risk investment, which generally results in a lower return.
Investing in bonds has been described as lending money to a government or company at an agreed interest rate for a certain period of time. Within bonds there are different types, credit and complexity ratings. For a more detailed description on bonds, specific to Australia check out the Money Smart along with the Australian Stock Exchange (ASX). Unlike cash, bonds do have the potential to have greater variability and there are more options to choose from. Be sure to speak to a person who has a solid understanding on bonds before investing in them.
Houses / property
Australian's tend to have a love affair with property. Generally a property is a longer term investment options, where you are likely to a mortgage from a financial institution to purchase one. Usually a property is illiquid or difficult to sell piece by piece, I've not seen a kitchen or bedroom in a house for sale before, have you? It is seen as unique due to being largely driven by owner-occupiers rather than investors, at least for the Australian market. It can be both an investment option or a lifestyle choice and could be one of your biggest financial investments. Look out for the costs associated with ownership such as council rates, strata fees, water rates and general maintenance. If you are investing there are property investment professionals that can assist, important to ask a lot of questions though!
Shares / equities / stocks
Usually cost less than property to purchase and can be transacted in most cases on a daily basis. Here you are essentially buying a "share" in a listed company. Based on how the company performs, the price that the company is worth per share then increases or decreases in value. While there is much more that goes into how shares / stocks work this is fundamentally how they work. Usually seen as having greater risk than cash / bonds and can be considered as having similar risk to property. Like all investments there are different qualities of shares and learning the research before purchasing is important.
This is a brief overview of investing and while you may not become an investing rock-star overnight, keep asking questions, reading books and building a trusted team around you. Over the coming months we'll be posting reading resources that can assist you with your money and financial goals.
What would you like to learn about investing? While we can not give specific advice, we can look at discussing in general topics to help you!
What has been your experiences in investing? Who has helped you in the past?
We'd love a comment and let us know what you'd like to know!
Live your Money Glee! :)