At some point, I knew that this… was going to turn into this… if I just did nothing with my money.
So that’s when I got into investing. And maybe you’ve decided to start investing as well,
but have no idea where to start. Well great because you’ve stumbled across this video and I’m
going to tell you exactly how to start investing in Australia as a complete beginner. But don’t
worry because I used to be like you too, and had no idea what investing even was when I was young.
So as I explored all the investing opportunities and made plenty of mistakes along the way,
all that experience that I’ve now gathered I’m going to share with you here
and teach you exactly how to start investing in Australia.
So first, the reason why investing is necessary is because of something called inflation. That is a
decrease in the value of your money every year at a rate of around 2-3% in Australia. So to combat
this, we have the first investing method which is to put your money in a high interest savings
account. This is the easiest and most risk free way to make money with your money, and the bank
will just pay you interest monthly as a percentage of how many you keep in your account. This is a
variable amount which is tied to the RBA’s cash rate. So 30 years ago it was around 17%, 10 years
ago it was around 7% but now its practically zero. So that's likely to stay there for a long time to
come. If you’re lucky, you might be able to find a bank that offers an interest rate of around
1% by smaller banks such as ING or any of the online-only neobanks that are trying to win
over customers away from the big 4 banks, who usually offer really lousy savings rates. So
definitely shop around. Signing up to a bank is as easy as applying directly on their website,
and then just transfer all your savings in. But keeping money in the bank is hardly
investing at all, and it doesn’t even make enough to keep inflation at bay.
So another investment type is in commodities. This is lots of different types of precious metals and
even oil, but the most well known commodity is investing in gold. So over the last 50 years,
gold has appreciated in value by an average of just under 10% every year. So this means that if
you invest in gold over a long term, you should expect to beat inflation by around 7% annually.
There’s a few ways to invest in gold, the first is to obviously buy physical gold,
but then you’ll need to deal with markups by the seller and also deal with secure storage of it,
so its not something you should consider. Instead, the best way to invest in gold
is to buy Gold ETFs listed on the stock market. The ETFs themselves will invest in gold bullions
and you invest in them. That way, the physical gold doesn’t actually move even if its ownership
might change several times. Some examples of Gold ETFs include the ASX stock ticker
GOLD, G O L D, and Perth Mint’s PMGOLD. Now to buy gold ETFs, you’ll need to use a Stock broker,
but I’ll explain that more when we get to the stock market section. Just be aware though
that even though gold is a very stable investment, which means that it won’t crash during a pandemic,
but also won’t go up very fast either, so the low risk will only give low returns and the
opportunity costs of keeping your money tied up in gold could be much higher than that.
So now let’s talk stock market. In Australia, it's called the ASX and it’s a great place to
start investing especially when you’re young. Whether you have $100 or even $100,000,
it’s accessible to everyone aged 18 and over. But the thing that stops most people from investing on
the ASX is trying to choose the right one from the thousands of publicly listed companies. Well as a
brand new investor, I always recommend simply just buying an Index or an ETF instead. For example,
a top 200 Index on the ASX has the ticker XJO and buying this means that you buy a little
bit of everything in the top 200 companies on the ASX. If you do that then you get instant
diversity on your portfolio and as well as the market returns of the stock market. There’s
a full list of indices on the ASX website that I'll leave down in the comments below.
Now the problem with an ASX index is that it only reflects the overall stock price. A better way to
invest is to buy an index fund that’s offered by a third party company such as Vanguard. For example,
if we look at the ticker VAS, it also closely tracks the top 300 stocks on the market
but it also pays the dividends of all those stocks as well. Which is roughly 3.1% in dividends,
but then if we deduct the management fees of 0.1%, then our net dividends will be around 3%
plus whatever the share price will increase to. I think if you’ve never invested before
in your life, then an index fund is exactly the first thing you should consider investing in.
This is the easiest way to invest your money in Australia, period. And historically has
returned around 12% every year, that's not even including dividends yet. That might not
sound like much but if you invested just $200 in an index fund every month for 30 years,
you’ll end up with $700,000 dollars! With most of that, coming not from your monthly deposits,
but from the interest itself. Your regular deposits only made up $72,000. You can play
around yourself with the compound interest calculator on the government's MoneySmart website,
and see the magic of compound interest at work. Now Index funds are great, but it limits your
portfolio to Australian shares only, which might all be affected if Australia suddenly gets into
an economic slump. This is why an ETF might be a better option because it’s similar to an
Index fund, but its fund managers can pick and choose the companies to invest in. and they’re
not limited to Australian stocks either, they can choose to invest part of the fund into US
stocks like Amazon, Facebook or Google, and give you even bigger diversity on your investments.
There’s a whole range of ETFs that you can choose from and they all hold different types of stocks
to try and get the best returns for you. My personal favourite is an ETF called VDHG,
or Vanguard High Growth which is an ETF that invests in other ETFs. Which means
that you get the best of the whole range of funds purely from investing in this one fund!
Sure the management fees are slightly higher at 0.27% compared to just 0.1% for an index fund,
but it's still very minimal considering how much money it's going to make you in return.
Now the third type of investment you could make on the ASX is what is called a LIC, or a Listed
Investment Company. So this is a publicly listed company with fund managers that actively seek
to trade stocks in other public companies that they think will beat the market on your behalf.
So in other words, you’ll be hiring professionals to try and get you a higher return. Now this does
come at a higher cost though. Management fees are around 1%, and the company also gets a cut of the
profits if they do outperform the market. So what is better? A LIC or an ETF? Well, I think a LIC
can give you slightly bigger returns, but the management fees will eat into those gains. Which
kind of makes them even out. And remember that those higher fees have to be paid even if the fund
doesn’t outperform the market. So for that reason, I personally have headed into the ETF
direction. So, to buy anything on the stock market, you’ll need a stock broker platform that
I’ve summarised in another video there or there. Once you’ve signed up, it's as easy as heading
their buy page, type in the stock ticker, quantity, price and hit buy and you’re done.
Now the next investment type that I have to mention even though I don’t really
call it investing, is the cryptocurrency market. The biggest of which is Bitcoin.
Now the reason I don’t call it investing is because it is a pure speculation game.
Unlike the stock market where the fundamentals of company value and revenue and stock price
to earnings are all well established and have a correlation to the actual price of a stock.
But Bitcoin on the other hand, or any other currency has none of that, and buying it at
any price is just how much someone else thinks the price should be at any time. And that price
could be as high as $100,000 on one day and then less than $5,000 on another day.
That kind of volatile movement is definitely not a long-term investment that you can bank on and
is definitely more like a lottery than the actual stock market. So if you are still interested in
that kind of thing, only put money that you can afford to lose. Buying into cryptocurrency is
actually pretty easy. Just log onto an Australian based exchange such as Swyftx, Coinspot or Binance
Australia and deposit funds to trade for Bitcoin or any of the Eth based altcoins and you’re
in that ecosystem. Again I stress that this is a highly speculative and volatile guessing game that
is just not a traditional type of investment that regular investors would be into.
So now we get to the final investment type and it’s the big one because it needs the most amount
of capital just to get started. And that of course is in real estate. But just like the stock market,
there are also different types of real estate that will perform differently independently of each
other. We saw this in the pandemic where houses in more regional areas were out performing apartments
in denser areas. Now retail property and offices in the CBD took a massive hit to its tenancy rates
and by extension its value as well, but commercial and industrial property was pretty much
unaffected. But depending on when you’re watching, that might all flip the other way round sometime.
So if you want to invest in any kind of property at all, make sure you have not
only the 20% deposit for the property itself, but also some back up funds to deal with the
landlord responsibility as well. As for returns, residential property will earn around 2-4% in
rent when you first buy it, and then gain between 8%-10% in capital gains on average. So worse case
scenario, that’s around a total of 10% gain which is a bit lower than the stock market. But it has
the advantage of leveraging your money to create gains from your debt. That’s probably a topic
for another time, but long story short, it’s basically just borrowing the bank’s money at a
lower interest rate to rent out the real estate that you bought with, at a higher yield rate,
and then you just pocket the difference. You can then wait some time for the property
to appreciate in value, refinance, and buy another property, and then do this
over and over again until it can generate enough money for you to quit your day job.
That of course is the dream for everyone but it takes a long time and usually needs some sort of a
leg up in the first place. This is where the stock market is an excellent accelerator for that leg up
and one that I highly recommend to start on first. Even if you’re not ready for the stock market,
there are plenty of stock market simulators that you can go and try out with fake money to
see how well you would have done just to improve your confidence for when you decide to start.
So I hope that makes things a little bit clearer for you and helps you take your first step towards
investing as a complete beginner in Australia. I will make a video on the best Index funds and ETFs
to start with so make sure you subscribe to the channel so you don't miss out on any of
those videos. And hit that like button for me as well so youtube knows to show this to other new
beginner investors as well. Thanks for watching guys and as always, I’ll see you next time.