Learn about the latest economic updates in our market movement and economic review video.
Investing for income
Share markets are renowned for taking unexpected downturns, and while history shows that markets eventually recover, this rebound in value can occasionally take time. Investors concerned about this risk, or those who no longer have a regular income, might consider a stronger focus on income-generating investments in their portfolio.
Income-generating investments can range from those with no potential to lose capital value to those with a higher risk of capital loss. Outlined below are some options.
Investments with no ‘growth’ component
Online savings accounts Interest on these accounts can vary substantially between providers and there can be enticing offers of extra or bonus interest for new customers or if you maintain a certain balance. The best advantage of these accounts is that you have access 24/7 to your funds.
Cash management trusts (CMT) are investment products that pool the deposits of other unit holders for investment in cash securities. Interest is calculated daily. There are no entry fees, but most charge management fees. They frequently have minimum withdrawal amounts and may require notice to withdraw funds. However, the trustee can decide to restrict withdrawals if it deems this is necessary in the best interests of the trust investors. CMTs are good for holding cash that is not needed for everyday living and offer easier access than term deposits.
Term deposits can pay a higher interest rate than cash management trusts, although in more recent years, rates on term deposits are close to those offered for online savings accounts. The downside is that your funds are unavailable for the term of investment and penalties can apply if you withdraw your money before the term expires. Terms range from one month to several years so you can choose the timing to suit your needs. Income can be paid regularly or at the end of the term.
Annuities can pay guaranteed income for a certain period of time or for the rest of investor’s life. The amount invested in an annuity can be used to supplement the income being drawn or can be preserved and returned back to the investor upon maturity. Income can be paid regularly or yearly. However, access to the capital is generally restricted for the term of annuity.
Investments that adjust in value to interest rates in the market:
Fixed interest managed funds invest in bonds and bank bills, known as debt securities. Like cash management trusts, they pool investors’ funds to provide access to investments at the big end of the market. These are often used as the fixed interest component in a portfolio. They can have a wide range of fees depending on the underlying investments and may have a small growth component.
Convertible notes are offered by companies and unit trusts. They can offer a good interest rate, and at the end of the specified term, the investor can choose to convert the notes to shares in the company or get their cash back. These are frequently traded on the stock exchange. The sale price depends on the market interest rates and market attitude to the company.
Hybrid securities are investments that combine the elements of debt and equity. They are offered by companies that borrow from their investors and pay back the interest. However, if the company disappoints the market, the underlying value can reduce. These securities generally have long terms (e.g. 50 years) and can only be sold on the stock exchange if there is demand.
Investments that have a growth component plus good income potential
Some Australian shares regularly offer fully franked dividends and also give you access to the tax benefits of imputation credits. To get the most from shares they should be held for the long term.
Listed and unlisted property trusts are investments that pool investors’ funds to purchase real estate, usually commercial property. Depending on the types of property investments held, they can provide a higher level of income, some of which may be tax-free or tax-deferred. Listed property trusts are traded on the Australia Stock Exchange and provide more liquidity than unlisted trusts.
A balanced portfolio
For many investors the best solution is to have a ‘balanced’ portfolio – that is, a selection from each of the different market sectors. This should be tailored to the individual’s needs, providing the level of income required at an appropriate level of risk.
If you’re unsure what income-generating investments may be best suited for your circumstances and needs, give us a call to find out more.
Navigating turbulent times in the share market
As investors grapple with uncertainty, keeping a cool head has never been more important.
“Time in the market, not timing the market” is a popular investment philosophy that emphasises the importance of staying invested over the long term rather than trying to predict short-term market movements. While markets can be volatile in the short term, historically, they tend to grow over time.
It’s a strategy that helps you avoid getting caught up in short-term market fluctuations or trying to predict where the market is heading.
With the recent market turbulence, from the global effects of US President Donald Trump’s administration to ongoing conflicts in Ukraine and the Middle East, savvy investors look beyond the immediate chaos to focus on strategies that encourage stability and growth over the long-term.
It’s a hallmark of the approach by the world’s most high-profile investor, Warren Buffet, who argues that short-term volatility is just background noise.
“I know what markets are going to do over a long period of time, they’re going to go up,” says Buffet.i
“But in terms of what’s going to happen in a day or a week or a month, or even a year …I’ve never felt it was important,” he says.
VIX Volatility Index – Historical Chart – 1990 -2025
Source: Macrotrends
Buffet first invested in the share market when he was 11 years old. It was April 1942, just four months after the devastating and deadly attack on Pearl Harbour that caused panic on Wall Street. But he wasn’t fazed by the uncertain times.
Today Buffet is worth an estimated US$147 billion.ii
Long-term growth in Australia
While growth has been higher in the US, investors in Australian shares over the long-term have also fared well. For example, $10,000 invested 30 years ago in a basket of shares that mirrored the All Ordinaries Index would be worth more than $135,000 today (assuming any dividends were reinvested).iii
And it’s not just the All Ords. If that $10,000 investment was instead made in Australian listed property, it would be worth almost $95,000 today or in bonds, it would be worth almost $52,000.
Australian shares – tracking performance from 1990 to 2024
Source: Vanguard
In real estate, the average house price in Australia 30 years ago was under $200,000. Today it is just over $1 milllion.iv
Meanwhile, cash may well be a safe haven and handy for quick access but it is not going to significantly boost wealth. For example, $10,000 invested in cash 30 years ago would be worth just $34,000 today.v
Diversify to manage risk
Diversifying your investment portfolio helps to manage the risks of market fluctuations. When one investment sector or group of sectors is in the doldrums, other markets might be firing, therefore reducing the chance that a downturn in one area will wipe out your entire portfolio.
For example, the Australian listed property sector was the best performer in 2024, adding 24.6 per cent for the year. But just two years earlier, it was the worst performer, losing 12.3 per cent.vi
Short-term investments – including government bonds, high interest savings accounts and term deposits – can play an important role in diversifying the risks and gains in an investment portfolio and are great for adding stability and liquidity to a portfolio.
Ongoing investment strategies
Taking a long-term view to accumulating wealth is far from a set-and-forget approach and by staying invested, you give your investments the best chance to grow, avoiding the risks of missing out on key growth periods by trying to time your buy and sell decisions perfectly.
Reviewing your investments regularly helps to keep on top of any emerging economic and political trends that may affect your portfolio. While it’s important to stay informed about market trends, it is equally important not to overreact when there is volatility in the share market.
Emotional investing can lead to poor decisions, so remember the goal is not to avoid market declines but to remain focussed on your overall long-term investment strategy.
Please get in touch with us if you’d like to discuss your investment options.
i Warren Buffett: The Truth About Stock Investing
ii Bloomberg Billionaires Index – Warren Buffett
iii, v, vi Vanguard Index Chart | Vanguard Australia Personal Investor
Is LOUD budgeting the answer to amplify your financial awareness?
Do you know Olivia? Perhaps she reminds you of someone you know.
Olivia always known that saving for her first home would require a bucket-load of discipline and sacrifice. And when she thought about the amount needed for a deposit…well, it all seemed too hard.
Whether it was a weekend away with friends, or the latest can’t-live-without gadget, Olivia was too easily distracted and couldn’t seem to control her spending.
The problem, she believed, was that long-term savings goals felt so unattainable that she saw no reason to go without the things she wanted – now.
In short, Olivia lacked motivation.
Olivia often expressed with her friends how frustrated she was by a seemingly unreachable sum required to buy a home, and her seeming inability to save. That’s when her friend Emma told her about loud budgeting. Loud budgeting, explained Emma, is a goal-oriented mindset, in which you make your frugal mindset obvious. It begins by saying, out loud, that healthy management of your money is something you value more than mindless consumption and the curated, unrealistic lifestyles portrayed in social media[1]. It starts with being willing to share your savings goals with trusted friends and family and being accountable to them.
For Olivia, it was like a light came on. This was the opposite of how Olivia’s parents managed their money; for them, discussing one’s finances was strictly taboo. But with the transparency of loud budgeting is its driver, this would definitely help when politely declining invitations to dinner or the movies, etc.
So, after talking it through with Emma, Olivia decided to try loud budgeting. They discussed how much Olivia would need for a home deposit and Emma guided Olivia through these simple steps:
- Review income and expenses and draft a realistic budget.
- Set a savings target, broken into smaller, manageable milestones.
- Create a large colourful chart to plot progress and keep it in a prominent place.
- Utilise technology; many banks offer savings tracker apps. Additionally, the government has a range of savings and budget calculators at moneysmart.gov.au.
- Invite feedback and provide updates to the people around you – take them on the journey with you, their support is invaluable.
- Stay focussed by visualising yourself achieving your goal, for example, unpacking boxes in your newly purchased home.
Loud budgeting became part of Olivia’s weekly routine. Each movement of her tracker pin along my chart was incredibly satisfying, and there was the sense of empowerment with every milestone achieved.
Olivia learned that loud budgeting is more than just a savings concept. Loud budgeting is all about being every bit as vocal and transparent about what you are doing to spend less and meet your money saving goals[2]. It’s even more than being accountable.
It was about sharing your dreams with loved ones. It was about celebrating each milestone with them.
So while loud budgeting may not work for everyone, it definitely worked for Olivia.
Perhaps it could work for you too.
[1] https://money.com/what-is-loud-budgeting/
[2] https://lifehacker.com/money/what-is-loud-budgeting-and-how-to-do-it
Financial strategies for freelancers
Since the earliest days of commerce, industries have looked for ways to reduce costs. For many, this meant designing business models around a lean workforce. Yet, seasonal peaks and troughs and operational pressures exposed a flaw in this thinking. Cue the gig economy worker, or freelancer.
While freelancing has been around for years, it really gained momentum the 90s as the internet went mainstream and opened opportunities for contract workers with specialist skills. With the emergence of online freelance platforms, recent years saw a boom in the gig economy. These days it’s thriving, boosted by sophisticated remote technology and, of course, the COVID-19 pandemic which normalised work-from-home arrangements.
While it can be a great lifestyle, freelancing is not without its risks. Freelancers sacrifice job security, and the benefits of permanent employment for higher rates of pay and the freedom to choose when and for whom they work.
Then, there’s employment uncertainty and the constant need to be hunting down the next assignment along with the lack of steady income and all the inherent budgeting problems that engenders.
Depending on a person’s life stage, the lack of income surety can be a deal breaker.
But it doesn’t have to be!
By following five simple steps, it is possible to minimise the impact of an uncertain income.
1. Create a budget and emergency fund
Good financial management begins with a realistic budget. Assess your average monthly income and monthly expenses. Consider essential expenses first, then look at discretionary spending. Understand needs vs wants – be honest with yourself. Next, build an emergency fund; enough to cover around six months of living costs. If you’re thinking of leaving a permanent role to join the gig industry, it’s advisable to build an emergency fund before handing in your notice.
2. Diversify your sources of income
You know that saying about eggs and baskets? It’s as true for the gig worker as the investor. Maximise and diversify your work opportunities by:
– joining multiple freelance organisations
– joining professional associations and networking groups
– being active on social media platforms like LinkedIn and X (Twitter)
– asking friends and family for referrals and recommendations.
3. Tax management
Tax is a fact of life so be prepared. Set aside a portion of your income for tax and superannuation. Tax mistakes, however innocently made, can be costly. It’s recommended that you consult a tax professional to understand your obligations and entitlements, including what records you must keep and whether you’re required to register for GST.
4. Invest in yourself
Gig workers are hired for what they know and their experience. Ensure you stay up-to-date with technology, regulations and trends in your industry. Increase your marketability and access to higher-paying work by subscribing to industry publications, taking online courses and regularly updating your skills and knowledge.
5. Insure yourself and your future
Staying fit for work is crucial, but accidents and illness happen. Ensure you have appropriate insurance in place to cover you if you become unable to work.
Summary
As your financial adviser, we can help you develop an appropriate insurance strategy. And don’t neglect your retirement plans. Financial security in retirement requires a long-term view and we can help with this as well.
There’s no doubt that the flexibility afforded by gig work is attractive, but it comes with its fair share of pitfalls.
With preparation, planning and professional advice, it is possible to enjoy the freedom of freelance working without sacrificing your financial security.