By “Betting” and “safe” seem like two words that shouldn’t be in the same sentence, especially when it comes to investing.
However, much of investing is risky but betting on certain assets or stocks can be considered “safe” or low-risk due to their nature. Add in diversification and your portfolio will be able to weather drastic market changes and fluctuations.
It’s important to note that diversification does not guarantee a profit or protect against loss, but it can help manage the risk. It is always recommended to consult with a financial advisor before making any investment decisions.
Safe Bet #1: Australian Government Bonds
Australian Government Bonds are debt securities issued by the Australian government to raise funds for government operations.
Since these are issued by the government, bonds have a relatively low rate of default making them a low-risk investment option. When you invest in a government bond, you’re lending money to the government and in return, they pay you with the interest at a fixed rate for a certain period of time, and return the principal amount at the end of the bond term.
Pros of investing in Australian Government Bonds include:
- Low risk
- Regular income
- Predictable returns
Cons of investing in Australian Government Bonds include:
- Low returns
- Interest rate
- Inflation risk
Safe Bet #2: Blue-chip stocks
Blue-chip stocks are stocks from companies that are well-established and have a strong track record of financial performance and stability. Think of the biggest companies in every industry – those are the blue-chip companies.
They are typically considered to be a safe investment option, as they are less likely to experience significant fluctuations in value.
Examples of blue-chip stocks in the Australian market include:
- Commonwealth Bank of Australia (CBA)
- Westpac Banking Corporation (WBC)
- BHP Group Limited (BHP)
- Rio Tinto Limited (RIO)
- Telstra Corporation Limited (TLS)
Pros of investing in blue-chip stocks include:
- Strong financial performance
- Dividend income
- Brand recognition
Cons of investing in blue-chip stocks include:
- Limited potential for growth
- Higher valuations
- Limited upside potential
Safe Bet #3: Property Investment
In Australia, there are several types of property investment options available to investors, including:
- Residential properties
- Commercial properties
- Industrial properties
- Development sites
- Property funds
- Real Estate Investment Trusts (REITs)
Like any other investments, property investments has its pros and cons.
Pros of property investment include:
- Potential for steady rental income
- Potential for capital growth
- Tangible asset
- Diversification
Cons of property investment include:
- High upfront costs
- Maintenance costs
- Liquidity
- Market fluctuations
Historically, the performance of the property market in Australia has been relatively stable, with the average annual growth rate of the Australian residential property market over the past 30 years being around 6-7%.
However, it is important to note that past performance is not indicative of future performance, and investors should conduct thorough research and consult with a financial advisor before making any investment decisions.
Safe Bet #4: Cash and Term Deposits
Cash and term deposits are a type of savings account offered by banks and financial institutions that offer a low-risk investment option for investors.
Pros of investing in cash and term deposits include:
- Low risk
- Guaranteed return
- Accessibility
Cons of investing in cash and term deposits include:
- Low returns:
- Inflation risk
As of January 2023, the average interest rate for a 1-year term deposit in Australia is around 0.7-0.8%. Some banks have it at 4.2% annually.
Historically, the performance of cash and term deposits in Australia has been relatively stable, providing a predictable and low-risk investment option for investors.
Safe Bet #5: Exchange Traded Funds (ETFs)
Exchange-traded funds (ETFs) are investment vehicles that allow investors to buy and sell shares in a portfolio of assets, such as stocks, bonds, or commodities, with a single trade.
They are typically managed by professional fund managers and are traded on stock exchanges, making them easily accessible to individual investors.
Examples of ETFs available in the Australian market include:
- BetaShares S&P/ASX 200 ETF
- Vanguard Australian Shares Index ETF
- iShares Global Healthcare ETF
Pros of investing in ETFs include:
- Diversification
- Low costs
- Easy to trade
Cons of investing in ETFs include:
- Market risk
- Limited control
Historically, ETFs have performed well in the Australian market, with many ETFs delivering strong returns over the long-term. However, it is important to note that the performance of ETFs can be influenced by a range of factors, including market conditions and the performance of the underlying assets.
Conclusion
It is important to remember that each investment option has its own set of pros and cons, and it is crucial to conduct thorough research and consider your own personal financial goals and risk tolerance before making any investment decisions.
Additionally, it is recommended to consult with a financial advisor to get personalized advice and guidance on your investment portfolio.
