$10,000 is a substantial amount of cash that can make a tremendous financial difference long-term if you invest wisely. Therefore, you must use the cash appropriately and find a means to get even an extra 2% return on the $10,000 each year, equating to more than $8,100 in additional gain over 30 years.
This article will take you through the best means to invest ten thousand dollars as an Australian in 2022 and maximise the money to get a considerable return long-term.
7 Ways To Invest $10,000 For Australians In 2022
1. Put Up An Emergency Fund
Setting up an emergency fund is the safest way of safeguarding your $10,000. An emergency fund is a bank account that holds cash you put aside to use in case of an emergency when you have no other financing option. Ideally, the emergency fund size should be equal to 3 to 6 months’ worth of your living expenditures, and it should be easily accessible for emergencies.
An emergency fund will give you the upper hand of not relying on credit cards to cover unforeseen events. With this fund, you won’t need to sell your investments or stocks to pay for an emergency when the investment value declines, and it’s not an appropriate time to sell. Furthermore, you won’t need to acquire high-interest loans when an unexpected event occurs.
Even though this is a boring way to keep your $10,000, having the cash sitting on the sidelines may ultimately save you plenty of cash, and it acts as a form of insurance in case of an emergency. Therefore, if you don’t have an emergency fund, it will be best to set aside a percentage of your $10,000 towards the fund.
An emergency fund should be completely liquid and accessible any moment you need it. The fund should also be kept safe so that it doesn’t fluctuate in price — you can set up an emergency fund in a bank with a competitive rate of a minimum of 1.5% return on your cash. Ensure you pick a bank with no restrictions for unlocking its highest savings rate.
It may seem more sensible to invest your cash instead, gain a higher 2% return, and put the funds in the stock market. However, it’s important to remember that emergencies abruptly occur when you need the cash the most. If a recession takes place and you lose your job, when you need your funds, your investments will have reduced by 20% value-wise, and that’s when you’ll wish you’d have kept your money in a savings account.
2. Pay Off High-Interest Debts
After setting up an emergency fund, you can move to this step. Paying down any high-interest debt can be a lucrative way to invest $10,000. Whether you have a personal loan, auto loan, mortgage, or credit card debt, the debt costs you money.
Some debts are good — you can keep a debt with meagre interest that helps you make more cash and then reinvest the cash somewhere else. On the other hand, if you have a high-interest rate debt that doesn’t bring in any money, you need to pay down that debt quickly.
When you invest your cash in a broad index fund or real estate, you expect a 6 to 12% return on your funds. To attain that kind of return, you’ll have to risk a few years to lose money in the long run. Contrarily, paying down a high-interest rate debt is like attaining a guaranteed instant return on your funds at the debt’s interest rate.
Therefore, clearing a 20% interest rate on a credit card balance is nearly similar to getting an instant guaranteed 20% return on your cash without any risk. A basic rule of thumb is that when paying over 5% interest rates, you should allocate as much cash towards paying down the debt since you’re getting the same return as what an excellent investment would produce after paying taxes on it.
Since there’s no downside in clearing high-interest debt, don’t hesitate to do it. You can use that $10,000 to settle the highest interest loan first and slowly work your way down. This is a risk-free guaranteed return on your money and great use of the $10,000.
3. Super or Superannuation
After setting up an emergency fund and paying down high-interest rate debts, you can invest the $10,000 in your superannuation or super account to get you going for the long term. Superannuation has excellent tax benefits that make it a worthy investment, particularly for almost retiring individuals. Nonetheless, superannuation is perfect for anybody.
A tax-deductible superannuation contribution is an excellent means to attain the highest return for your dollar. You can boost your superannuation and receive a tax deduction to make the deal sweeter. However, everything concerning super has regulations and limits.
First off, you can’t claim tax deductions for superannuation contributions your employer makes on your behalf. This comprises your employer’s 9.5% mandatory super guarantee and any reportable contributions more than this amount, plus any salary sacrifice arrangements you have. Additionally, you can’t claim rollover payments deductions from another fund, foreign funds included.
The tax-deductible superannuation contributions are made out of your post-tax income. This revenue may be from asset sales, inheritance, savings, or your tax-home pay. Regardless of the source, you can make payments to your superannuation fund from your bank account as a recurring direct debit or one-off payment.
The contributions count towards your concessional contributions cap, that’s $25,000 per year at the moment unless you’re applying the carry-forward rule.
The concessional contributions are levied at the 15% superannuation rate for individuals on salaries of up to $250,000. Fortunately, 15% is less than the marginal tax rate you pay on earnings for most individuals. This is free profit for anybody with a 15% and above marginal rate, most individuals with an average job.
For instance, if you earn $80,000 yearly, you’d already be receiving $12,000 yearly compulsory super payments from your employer. This implies that you could contribute up to $13,000 annually before hitting the $25,000 concessional contributions cap. If you decide to allocate the whole $10,000 towards your superannuation, after 15% ($1,500) of contributions tax is deducted, you’d be left with an $8,500 net contribution.
You can claim a $10,000 tax deduction in your next tax return, lowering your taxable earnings to $70,000 for the year. The marginal tax rate would be 34.5%, including the Medicare levy, meaning you’d pay $3,450 less in tax. Counting the $1,500 you paid in the 15% contributions tax, $1,950 would be your immediate net “profit”.
Nevertheless, it’s essential to set yourself up for the appropriate investment alternatives with your superannuation.
4. Less Risk, Less Return Investments
If you’re saving up for a more significant investment or don’t want to take on too much risk, you can use a high-interest savings account, term deposit, or invest in a bond ETF. This may appear counter-intuitive since this article’s main aim was to find a means to maximise your investments.
However, you may sometimes wish to save up for something that may cost you over $10,000, like investing in a business or purchasing real estate. This strategy comes in handy at this point — it is low risk, low returns but secure, consistent, steady, and you can continue saving, keeping in mind that the $10,000 isn’t going anywhere.
The most obvious option may be a high-interest savings account. Luckily, several high-interest rate savings accounts pay you over a 1.5% return on your funds.
If you’re sure you’ll not require that money soon and want to save up a particular sum in the future, you could opt for a term deposit that normally gives you a bit higher return.
A term deposit is a savings account type in which the bank offers you a fixed return rate over a fixed period, anywhere from a few months to years. Therefore, the return is steady and guaranteed and often slightly more significant than savings account rates because you don’t have liquidity.
Nevertheless, we’re currently in a strange economic environment where term deposit rates are lower than savings accounts rates. Banks think that rates will continue to remain low or lower, meaning the variable rate on your savings account will likely fall over this period.
You can also invest $10,000 in bonds. This option is for individuals who want to take risks and play safe simultaneously. A bond is an IOU from a government, and bonds are mostly safe. The Vanguard Australian Government Bond Index (VGB) ETF has paid approximately 5% p.a over the long term.
Keep in mind that this isn’t a risk-free return since the bond value may go down, and as a result, the payout will also go down. On the other hand, you may make extra cash if the bond value increases. This option is ideal for people willing to take on a bit more risk to get a marginally higher payout.
Overall, either of these three investment options can be an excellent way to spend your $10,000 if you wish to keep your investment safe and risk-free while saving up for something bigger.
5. ETFs/Index Funds
Index funds are the ideal investment option if you want to make a big move using your $10,000 and turn it into a small fortune in future. An index fund tracks the market, and you’ll have the ability to own a small amount of everything for one low cost.
Since these funds track the overall market and not only a particular stock, index funds ultimately give you more diversification and consistent growth long-term. On average, VDHG, the most popular index fund in Australia, has generated approximately 8% return over the long term.
This is likely the best risk vs reward. Index funds have meagre fees meaning more cashback to you. These low fees are because they are simple to compile and aren’t actively managed. Therefore, the savings pass on to individuals.
Another advantage is that most individual investors will ultimately make more cash long term investing in these funds than they will by investing in individual stocks. Many studies have also revealed that 92-95% of portfolio managers couldn’t surpass the stock market index over 15 years.
Index funds are also advantageous due to their diversification. Even if you have ten or fifteen stocks in your portfolio, having one of them perform poorly will cost you too much money. Contrarily, if you purchase into a broad market index fund, you’ll own a small amount of thousands of varying firms.
Last but not least, index funds are simple. You don’t have to spend hours to get an undervalued stock or wait and try to purchase it at the lowest price and attempt to sell at the very peak. You only need to click some buttons and buy a total stock market index fund.
6. Individual Stocks
If index funds are a bit bland for you and you wish to take on more risk for a potentially greater reward, you can invest your $10,000 in individual stocks. This is the riskiest investment in this article, with probably the highest payout.
In this investment, you place all your funds within several specific firms, and the entire investment depends on how the businesses perform. If you do well in choosing stocks and are not trading emotionally, individual stocks could be the best option. Ensure you use an affordable broker to avoid paying expensive brokerage fees.
Through broker platforms, you can trade stocks that you pick, and some of the returns that you may get trading individual stocks can significantly outpace the returns you could receive in an index fund if you choose well.
Keep in mind that individual stocks are risky, and you might lose too much cash doing this. This type of investment is ideal for people interested in learning about the stock market and how to trade and who don’t regularly check stock prices and fret about it.
7. Property Investment Or Real Estate
You can get started on real estate investment using your $10,000, depending on the price point of the specific area you wish to invest in. If $10,000 is all the money you have, you’re likely not going to invest in property.
Extra expenses could crop up from this investment option, and things could go haywire. Therefore, you should have a cash buffer in place and an emergency fund to cater to your needs if something unexpected occurs.
However, suppose you have ten thousand dollars to use mainly for the down payment. In that case, you could purchase a property worth up to approximately $100,000 to $200,000 or more (in more rural regions) and then rent the property out. This way, you may end up generating money in multiple ways.
The benefit of this investment type is that you’ll get to borrow most of the cash you require to invest. This means you could leverage your funds and probably control a $100,000 investment for the small price of $10,000, and then you’ll keep all the returns that the property brings in. For instance, if the property value increases by 10% the following year, you’ll generate a 100% profit on your ten thousand dollars investment, meaning you’ve doubled your funds.
Additionally, renting out the property for hundreds of dollars each month will boost your revenue. Don’t forget the tax benefits linked to depreciating the property, building equity in the property, seeing the property appreciation, and writing off expenses.
The main downside is that real estate investment is risky, and the entry barrier is higher. You must have a decent salary to support a mortgage, and you must be careful about the property you purchase.
Furthermore, this is an actively managed investment. Therefore, you’ll have to put in effort and time. Nonetheless, if property investment is your thing, you’ll have complete control over the investment, and you’ll receive several tax benefits and ultimately generate a lot of revenue,
The above are the top ways Australians can invest $10,000 in 2022. You’ll just have to pick an option depending on your risk tolerance and the duration you wish to invest for. Overall any of these ways can help you maximise your money’s return and help you turn it into an enormous fortune in future.