There are many ways to invest your money these days, in fact there are so many options it can be hard deciding which one is right for you.
Growing your wealth is essential if you're going to live a comfortable retirement. Plus, you never know what might arise prior to your golden years, which is why it's important to have a strong savings scheme in place. While it's smart to have a savings account, there are other options for investment too – such as term deposits and property.
Is property investment overrated?
The Reserve Bank of Australia recently released its Financial Stability Review, which offers some interesting points for those taking out home and investment loans.
The RBA noted that banks need to exercise caution with regards to property valuations and lending practices.
"[E]xtending loans at constant loan-to-valuation ratios (LVRs) can be riskier when property prices are rising strongly, as is currently the case in some commercial property and housing markets", the report stated.
At present, the market is exhibiting favourable conditions for investors, with low interest rates on offer thanks to the RBA's 2.5 percent cash rate. Plus, certain cities are exhibiting very favourable price growth, which could be a boon to investors.
When purchasing real estate, it's essential to undertake thorough research. It's important to clarify vacancy rates, capital growth potential and transport links in an area before leaping into investment. There's no point adopting a cash-flow positive property strategy if you struggle to find tenants, and it's also essential to consider what you'd do if you suddenly had to sell in a tough market — would you get a re-sale price you're happy with?
Property investment has its benefits
While there are risks involved with property investment, there are also plenty of benefits. If you do your groundwork, buying real estate can be a great way to grow your wealth.
There are several advantages to investing in real estate. For instance, many investment property-related expenses are tax deductible. According to the Australian Taxation Office, immediately deductible expenses include:
- Building, contents and public liability insurance
- Interest expenses
- Water charges
- Repairs and maintenance
- Body corporate fees and charges
Generally, real estate appreciates in value over time. While the property market goes through cycles, property can be a solid long-term investment option.
The pros and cons of term deposits
It's clear there are benefits and disadvantages to investing in real estate. But what about term deposits?
Many individuals opt for term deposits to earn interest on their money, given their low-risk status. There's very little chance you'll lose money on a term deposit.
Plus, you'll also know what the rate of return is, which gives you a sense of stability. If you run a term deposit comparison, you can see which lenders are offering favourable interest rates. Remember, the rate is fixed over the term of the deposit, whether you put money away for three months or five years. This protects you against potential increases in the cash rate.
There are negatives, though. If you want to access your money before the deposit term is up, you could incur fees or forgo your interest. You can't add money to your term deposit over time, either. While term deposits give you peace of mind for their relative security, it might be wise to consider other investment options, too.