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Today’s video is in response to some of you guys messaging me about where to invest a spare $10k here in Australia.
Now I know many commentators would say to invest in shares or ETFs, but I thought I would show you 4 traditional ways to invest that money, as well as 3 bonus ways you might not have thought about.
Transcript:
Recently I’ve received a fair amount of messages about what I would invest in, if I had a spare $10k.
So, I thought, why not do a video?
I know that questions like these have been done to death on Youtube with most Youtubers recommending something like ETFs, or shares or a combination of both.
But I thought I would do something a bit different with this video – and to show you guys 4 traditional ways to invest $10k and for those who are especially keen 3 alternative ways to use that $10k which you might not have thought about.
But first, a short disclaimer – to always, always do your own research before making any financial decisions and don’t just rely on the opinion of some random guy on the internet.
Ok let’s begin!
Oh wait, before we do, I have to put it out there that if you are not comfortable to invest, then don’t!
Leave it in your emergency fund and park it for a rainy day in the highest earning account you can find – typically 1.5-1.7%.
So let’s start.
The first way is to pay down high-interest debts.
Boring I know, but really think of it as paying yourself first.
By this I mean, to pay-off any personal, non-deductible debt such as credit cards or personal loans.
Eg. credit card debts can be upwards of 20% pa.
By paying down this debt, you are effectively making a return (risk-free) of 20%+.
No investment in the world offers those level of returns.
The second way is to leave the money in the bank.
Now you might be thinking, hey! You already said to park it in an emergency fund… well yes, and no.
You see, what I mean here is to leave it in your mortgage offset account (for those of us who have mortgages).
By leaving it in the offset account, you are “offsetting” the interest against your mortgage.
So again, you are earning a risk-free rate of whatever your mortgage rate is, say 3%.
This is better than if you were to leave it in a cash and term deposit account earning 1.5% pa.
The third way is what many people have done, and that is to invest this money in either shares or ETF’s.
ETF’s are a great set-and-forget type of investment because you are receiving the return from an underlying index.
For example, if you wanted to track the return of the ASX200, you might want to have a look at the ishares core S&P/ASX200 ETF, or if you wanted to track the return of the S&P500 in the US, then the ishares core S&P500 ETF might work for you.
Of course, you could also invest the $10k directly into shares, either as one lump-sum purchase, or evened out say $2000 over 5 months as part of dollar cost averaging.
The fourth way is something most of us haven’t thought about, but what we should start to do, and that is to invest it in our superfund in the form of a pre-tax contribution.
I’ve done a detailed video on this topic but the main benefits for this is the lower tax (for most people) of 15% under super versus the average marginal tax rate of 32.5%.
Now we come to the bonus section of alternate ways to use that $10k.
The first bonus way is Peer-to-peer (P2P) lending, in which case you act as a bank and lend your money out to other people for a higher rate of interest.
Bear in mind that like any loan, the risk is if the borrower does not pay you back.
Two of the largest P2P lenders in Australia are SocietyOne and Ratesetter (now known as Plenti).
You could be looking at a return starting from 6% pa with these lenders.
Surprisingly the borrower default rates are relatively low, with Ratesetter default rates just above 2%.
The second bonus way is to buy physical commodities like gold or silver.
Because they are tangible in that we can see and touch it, physical commodities have often been used as a protection against inflation and as a store of physical wealth.
Of course, many of us would prefer to buy the commodity ETF instead, however if you’re not a fan of the market price fluctuations and would prefer to see and touch your investments, there’s nothing like a gold ingot!
The third bonus way to use that $10k, is to start your own business.
And I don’t mean a traditional shop either, cos it’s never been as easy as today to get into e-commerce.
For a couple hundred dollars and a few hours, you can have your e-comm website up and running.
Of course, you need to make sure you have a suitable product or service to sell to your market.
If you want to start your e-comm career, than start by looking into websites like Shopify or even selling on Amazon.
Whichever way you decide to go, make sure you understand the risks and what you are investing into.
Good luck!
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