Crisis:

Sam Henderson

Where do you invest for the best returns? This is a question everyone asks themselves when they’re deploying their capital. Knowing where to invest and doing your research on the risks are paramount to your success.

Educate to elevate

I recommend investors start by looking at the MoneySmart website (moneysmart. gov.au) for a quick overview of licensing, warnings, calculators and general consumer information that will be helpful on your expedition. It’s always cheaper to learn from other people’s mistakes rather than your own.

My second recommendation is to buy a bunch of books. They are a cheap way to learn a lot quickly. I’ve learnt half of what I know through books and half through experience. Investment books usually cost around $30 each and if you don’t like reading try the website audible.com. Podcasts are also an invaluable free tool.

Risk versus return

Let’s have a quick look at potential asset classes such as cash, fixed interest, property and Aussie and international shares. As you go up the risk-return continuum, you start with cash. It’s a very low-risk and very low-return class that struggles to keep up with inflation. So in real terms if you leave your money in cash you’ll go backwards.

Long-term property

Property seems to be flattening out at the moment and the industry is full of spruikers, all with their own motivations that may not be aligned with your own. I always like to buy second-hand properties that I can add value to by renovating and either selling or hanging onto.

Ideally, only sell property when you need to and try to use the last property to get you into the next one. Location is paramount and research is essential.

Credit is tight with the banks at the moment and rates will inevitably go up and stunt market growth. We are on the precipice of a paradigm shift so make sure you’ve got the cash flow for higher rates and longer vacancies if you’re an investor.

Beware the spruikers!

Spruikers make up to 8%-10% on the value of new properties, so make sure you understand what their motivations are and how they might be different from your own. Financiers make around 1% on your loans too, so everyone is getting paid somehow and it’s your job to find out how and whether that’s aligned with your needs and objectives.

Australian shares

Shares may be volatile but income is also high in shares at the moment and they are my preferred asset class for retirees. After tax and costs, income from property is very low at present as the market is overpriced, whereas shares seem fairly valued at around 5750 on the All Ordinaries.

On that note, I think shares are a good place to start for investors. Exchange traded funds (ETFs) such as SPDR S&P/ ASX 200 (ASX: STW) and Vanguard Australian Shares 300 (VAS) provide a low fee and diversity for investors, and are liquid and trade on the ASX. Direct shares work well for larger investors seeking to benefit from a diversified portfolio.

International shares

Shares seem overvalued in the US in historical terms. Price-to-earnings ratios are very high and if Donald Trump doesn’t deliver on tax cuts and infrastructure spending then the market is susceptible to a correction.

Europe, on the other hand, is recovering, so you may benefit from a diversified portfolio across international borders available via managed funds or ETFs. Check the Blackrock iShares range for a solid portfolio of ETFs. Invest in yourself

The best and potentially worst investment you can make is in yourself. The highest risk and the greatest potential reward may come from investing in your own business. Many successful business owners make many times what they could ever earn by working for someone else.

The higher the profits the higher the risks, so no matter which direction you take, do your research to avoid the potholes and seek advice from multiple sources if you’re not sure where to turn.