Safest investment options in australia

A better strategy for conservative investors is to find investments that provide higher returns than term deposits, and have less risk than holding a handful of shares directly. Such strategies are readily available if you know where to look. Their ideas ranged from inflation-linked bonds to floating rate corporate bonds and notes, funds that specialise in hybrid securities, exchange-traded funds, listed investment companies, funds that use options strategies to boost income and defensive equity portfolios.

Investments paying interest | ASIC's MoneySmart

Online savings accounts were also recommended for those not quite ready to leave the safety of cash. These sleep-easy investments are particularly useful for investors who sold shares during the global financial crisis, reinvested in term deposits and must now take greater risks to produce decent returns but are concerned about leaping from cash investments into income stocks in an uncertain sharemarket. Income stocks do not suit all investors. For one thing, valuation risks have risen for the most popular ones.

Long-term investors who buy stocks for yield may be less concerned by sharemarket falls and stock price gyrations. But those who need access to their savings, and cannot withstand potential capital losses, can scarcely afford such luxury. Oft-cited comparisons between bank stocks yielding 7 per cent and term deposits returning 5 per cent overlook the volatility in bank shares, which can easily rise or fall 15 per cent in a year and worry investors during sharemarket corrections.

Portfolio construction is another challenge. Conservative investors might be better off holding in the core of their portfolio low-cost, diversified index investments that provide the market return and yield, and using active managed equity funds as portfolio satellites to achieve a return greater than the market.

I doubt conservative investors realise how much risk is involved with higher-yielding securities. The following ideas show solid single-digit returns can be achieved with far less risk than picking a handful of popular high-yielding stocks. Commentary on falling cash returns usually focuses on term deposits and overlooks their poor cousin, online savings accounts.

Analysis prepared by Infochoice. Investors can always negotiate for higher term deposit rates and, if the official cash rate continues to fall, returns on cash products will drop further. However, rising healthcare costs are a significant issue for self-funded retirees and a good reason to ensure their portfolios are protected against higher inflation.

Better still is knowing the yield is hedged against rising inflation, which remains a medium-term risk if interest rates fall to record lows and potentially overstimulate the economy.

Saba recommends floating-rate over fixed-rate bonds because they have a variable coupon rate, which is linked to a money market reference rate plus a margin. In contrast to fixed-rate bonds which can be sensitive to interest rates, the capital price of a floating-rate bond is not greatly affected by rising or falling rates.

Buying a fixed-rate bond may not be a sleep-easy investment: Saba prefers higher-ranking floating-rate bonds such as Commonwealth Bank CBAHA — 4.

He also likes the recently issued APT Pipelines subordinated note AQHHA — 6. Although these yields look modest compared to grossed-up yields on shares, Saba says there is scope for higher returns from contracting credit spreads — a solid recent trend.

As always, investors must be comfortable with the issuing company. Hybrids are not without risk, and those issued by smaller companies do not qualify as sleep-easy investments. Nevertheless, much of the negative commentary has focused on isolated examples of poorly performed hybrids, overlooked yields of 6 per cent or more from high-quality issuers such as the big banks and neglected to consider the benefits of owning a portfolio of hybrids to spread risk. He believes conservative investors should use funds that specialise in hybrids rather than buying them directly, which is sound advice given their complexity.

The fund returned 7. Income-enhancing strategies using options are popular with yield-driven investors. Such strategies aim to make extra income from a share portfolio by buying shares and selling away some of the upside share price potential of the portfolio. This is done by writing call option contracts over an equivalent number of shares to derive extra income in the form of an option payment a premium from the option buyer a buy-write strategy.

Understanding the strategy, or using fund managers who employ it, is well worth the effort. Landmark research conducted by the independent financial research body SIRCA and released by ASX this year back-tested returns over several years. The research showed it was possible to generate an additional 3 to 7 per cent return each year, on top of the dividend yield, using a buy-write strategy.

BetaShares head of investment strategy Drew Corbett says its new Australian Top 20 Equity Yield Maximiser Fund uses a buy-write strategy to enhance yield. Holding a basket of the 20 largest stocks, which are typically more defensive during sharemarket corrections, makes sense for conservative investors.

The extra potential yield from the buy-write strategy does not have huge extra risk if one assumes the market is likely to remain flat or make modest gains this year. Buy-write strategies typically work better in markets which are flat or falling rather than strongly rising.

The best place to invest $10, today

The Australian Foundation Investment Company delivered a 31 per cent one-year total shareholder return in , Argo Investments returned 28 per cent and Milton posted 29 per cent. Those returns are unlikely to continue in The three LICs traded at unusually large discounts to their net tangible assets NTA a year ago as the LIC sector lost favour.

5 Safe Investments That Keep Your Money Secure

Each now trades at a slight discount or parity to NTA after share price gains in the past year and renewed interest in LICs. Unlike exchange-traded funds, which aim to replicate an index, the big LICs provide moderate active exposure to Australian shares.

They are well suited to conservative investors who want exposure to blue-chip shares, reasonable fully franked yield and low ongoing management fees. Although likely to suffer if the sharemarket falls, the largest LICs have good long-term records.

Several strategy-focused ETPs have been launched in recent years to provide investors with index-like exposure to higher-yielding stocks. Like all ETPs, the yield ones are bought and sold like shares on an exchange, have low fees and provide diversified exposure by replicating an index based on dozens of stocks.

Differing index methodologies mean the yield ETPs can include quite different stocks. Some have more exposure to mid-cap growth stocks, which might not suit conservative investors.

ETPs should appeal to investors who like the idea of gaining yield from a basket of stocks, rather than holding a few income shares directly, and who are willing to take some equity risk if the market falls. A-REITS have also become more popular with income investors. Lots of ideas Their ideas ranged from inflation-linked bonds to floating rate corporate bonds and notes, funds that specialise in hybrid securities, exchange-traded funds, listed investment companies, funds that use options strategies to boost income and defensive equity portfolios.

Risks aplenty Income stocks do not suit all investors. Core and satellite Portfolio construction is another challenge. Online savings accounts Commentary on falling cash returns usually focuses on term deposits and overlooks their poor cousin, online savings accounts.

Elstree Investment Management director Norman Derham believes hybrids are misunderstood. Equity income strategies Income-enhancing strategies using options are popular with yield-driven investors. Exchange-traded products Several strategy-focused ETPs have been launched in recent years to provide investors with index-like exposure to higher-yielding stocks. Tony Featherstone Smart Investor. Categories Europe 1 General 11 Stock Market 9.

Archives February January December November October June August July May April March February January December October Recent Posts Getting Bang for Your Investment Buck Capitalise on Government Incentives How to Use The Equity in Your Home Boosting Your Borrowing Prospects How Interest Rates Affect Your Mortgage.

Investors Exchange Ltd ACN IEL holds an Australian Financial Services License AFSL and is the issuer of the product disclosure statement PDS for a Classic Investment Offer for the Investors Exchange Investment Fund IEIF ARSN The IEIF is a managed investment scheme investing in loans. An investment with the IEIF is not a bank deposit and carries the risk of investors not getting all or part of their investment back. This information is general advice and not personal advice and you should consider the IEIF PDS [available on our website www.