Best way to invest 20k in Australia

It’s not easy or common to come into 20k– you may have received this amount through a bonus, an inheritance, a real estate sale, or as some sort of winnings. If you have recently received this much money and it’s just sitting in your account, it’s time to make use of it.

You don’t want the money to get stale. Not to mention the fact that, by doing nothing, you will actually be losing money due to inflation. We’ve compiled the best ways in which you can invest your money, including suggested allocations and other tips.

Table of Contents

Set Your Financial Goals

Your goals can range from near-term to distant. The first steps to a financially stable future may seem insignificant, but this is far from the truth. Before you can see your 20k grow into hundreds of thousands, you’ll need to achieve some key short-term financial goals:

Establish a budget and stick to it;
Save up to cover significant financial difficulties, like unemployment;
Pay off credit card debt.

Once you cover those goals, you can focus on mid-term targets. These may vary from person to person, but here are some ideas you should work towards before making your first investments:

Buy long-term insurance (life and disability);
Pay off student loans;
Assess what is important to you (buying a home, setting a college fund for kids, etc.).

Finally, you’ll need to estimate your needs for when you retire. You can raise capital to make your current living conditions more comfortable, but you also need to look into the future. Particularly, you’ll need to figure out your annual living expenses during retirement. Bear in mind that you’ll likely face higher healthcare costs in retirement.

These steps will give you a general idea of where you need to be financially at certain points in time. There probably won’t be perfect, linear progress, but setting them is important to see where you stand at the moment, and where you wish to be.

Decide on Your Yield to Risk Ratio

There are several types of investors who vary according to their financial aspirations and how long they are willing to wait for them. Usually, the better the expected yield, the higher the risk will be. Think about which style suits you the most, and if you’ll be able to sustain it for a long time.

With moderate risk options, you’re usually more likely to gain better profits and a good return on your investment. However, this means that you’ll need to accept occasional losses. After a series of highs and lows, there is a chance that you’ll end up with much more money than you had originally.

On the other hand, there are low risk and low/medium yield options. These will generate the most steady and secure income. If you don’t feel comfortable making risky moves, it doesn’t mean you’re not fit for investing. You can still make profitable, more liquid investments, and thus prevent inflation-related losses.

Invest: 5 Ideas That Work

There is no such thing as the ‘best’ investment. Every person has a type of investment that fits them best, or even a particular combination of several of them. Below are ideas for turning your 20k into an even heftier sum.

Savings

Putting money into a savings account is one of the safest ways to allocate large amounts of money. You should ideally put in about 50% of your funds. If you know you’ll want to make a withdrawal in a relatively short amount of time, you can place more than 50% of your funds into the account. But the best way of using a savings account is to leave it for years and even top it up from time to time.

Here are some significant reasons why opening a savings account is a good idea:

Asset protection
Acts as an emergency fund
Easy to set up
Minimal requirements and maintenance

Generally, savings accounts offer an annual percentage yield of around 3%, which is relatively good for such a low-risk deposit. For a higher potential reward, you’ll need to look someplace else.

Options

Options are considered to be fast-moving, fast-money trades. They have been known to make fortunes, but you should always keep in mind that options are sharp tools and that you must follow certain techniques so as not to abuse them. Finding good brokers is essential here.

The beauty of investing in options is that you can benefit from market movements regardless of their directions. Plus, you participate at a fraction of the cost of share ownership and with some protection against loss. For example, you could use your entire 20k fund to purchase 2,000 shares that are worth $100 per share (imaginary scenario). But the same shares could go as options for as little as $1,5k for the same stocks.

To summarize the benefits of options, they have:

Potential to deliver higher percentage returns
Built-in flexibility and strategic alternatives
Ability to hedge long-term stock market positions at a low cost
Lower commissions

With options, it’s possible to make a lot more profit using little outlay. This is largely due to leveraging, which allows for bigger gains using smaller capital. Not to mention that putting money on options is a far easier way to get into the stock market than most other financial assets.

Businesses, Partnerships, Start-Ups, and Franchises

You can choose between active alternatives to starting your own business, such as intrapreneurship, finding partnerships, or purchasing a franchise. These options still require you to put in some effort, but not nearly as much as you’d need to start your own venture.

You can also go for more passive choices, such as owning a business by investing in it. Choose an existing business, startup, or venture capital firm which aligns with your views and objectives. Then, get in touch with the founders and finance that business.

There is always some degree of risk involved. But at least you don’t have to quit your job and devote all your time to developing a brand-new company.

We can summarize the advantages of investing in business alternatives with the following points:

Same benefits of business ownership
Minimizes the difficulties of entrepreneurship
Less stress and time commitment
Lots of options to choose from

Starting your own business from the bottom up can be daunting. Even though suggested alternatives don’t offer any guarantees either, this is a much less stressful method for making a good return on your 20k.

Real Estate

You may not know how to buy an entire property, but there are a number of real estate strategies you can use to increase your wealth. For example:

Put a down payment on a rental property – This means securing a purchase and getting a loan for total control over the property. You may need to stretch your budget to pay it off, but the financial gains are considerable.
Real Estate Investment Trusts (REITs) – This option allows you to pitch in on the investment and earn dividends from companies owning commercial real estate. All the hassle of being a landlord is avoided, and you don’t need any experience.
Real estate crowdfunding – Here, you become a stakeholder in the real estate project. Make sure you’re dealing with a trusted crowdfunding platform and have a solid strategy.
Real estate partnerships – This one is similar to the previous option. You can partner up with an experienced investor who has the better credit and larger funds and then contribute a sum of 20k.

Practically all types of real estate investments offer the same benefits: relatively passive income, stable cash flow, tax advantages, diversification, and leverage. Returns can vary based on location, asset class, and management, but overall, they are considered competitive.

Superannuation Account

Superannuation is the state-arranged pension program, aimed at putting money aside when you eventually retire. In theory, you can rely on the age pension, but your retirement is guaranteed to be a far better time for you if you max out your contributions.

Even though the Government makes some fuss about superannuation, it does have some advantages over other investments:

Very low tax rate on earnings
100% tax-free source of income for people over 60 years load
Protected from bankruptcy
Can be paid by employer contributions

If you get into the superannuation system, there are opportunities for regular saving, which is tax-efficient and generally invested in good quality long-term assets.

Spread Your 20K Around

This point ties in with the section about managing risks. Even if you’ve established your investment style, the best recommendation we can give is to diversify. You may have a particular asset which you expect to get a great gain from. But you should always be looking for risk minimization strategies.

The basic idea behind diversification is to choose investments that correlate in the opposite direction. That is, if one asset goes down, another one goes up, balancing it out. Even for markets in which it’s hard to expect these sorts of movements, you should have a healthy balance of different investment strategies. You could, for example, allocate some funds for short-term options trading and put the rest in a high-interest savings account.

A common formula is to use 70% of your funds to invest safely, and use 30% for riskier investments. These percentages can fluctuate depending on different factors. For example, younger investors can handle risks better because they have more time to even out profits and losses. Another important factor is, of course, your average income. If you can’t afford to lose your investment, adjust your strategy accordingly.

Grow Your Portfolio

Set-it-and-forget-it won’t work if you want to maximize your returns. Divide your investment timeline into many sections and review your strategies, profits, and losses over time. See what works and what doesn’t, and don’t be shy about making adjustments on the go. But remember that you won’t achieve success overnight – set a reasonable timeline. This concludes our introduction on how to invest 20k in Australia. It’s not as complicated as financial advisors make it out to be. Now you know some of the best ways to use that money wisely and multiply your funds. The only thing left for you to do is to choose which investment options you prefer more, and act!