It’s been an uncertain 18 months for many of us, there’s no denying it. But that doesn’t mean that our investments have slowed down.
So if you’re considering your investment options for the coming year, we’ve compiled a list of the top investments for Australians in 2021.
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Australian property
Despite a dip in 2020, the Australian property market is recovering, and prices are looking to be on the rise. And at the end of 2020, we saw record low-interest rates, making property a particularly enticing investment.
This is the reason that Australian property has been the number one performing asset class in 2021. It saw a return of 33.2%, demonstrating a 20-year average of 8.5%.
And it can be a smart move. When investing in property you’re potentially investing in an asset that delivers capital growth. It’s shown to be a reasonably stable investment, demonstrating its ability to weather financial storms, and lets you gain access to tax benefits and depreciation costs.
This means that property can be considered a safe long term investment. And, if you’re investing in a rental property, you’re likely going to generate a positive cash flow alongside your investment.
Investing in shares
Shares are a smart investment choice for a number of reasons:
- They’re flexible. You can choose to invest as little or as much as you want, and it’s relatively easy to change your investment if you change your mind.
- They provide good capital growth when held for the long term, as shares grow in value over time.
- They’re a good source of passive income. Some shares pay regular dividends, which can supplement your income over time.
- They’re low cost to manage. Holding shares for the long term reduces the fees you pay in management.
Australian shares
In the 2021 financial year, the second-best performing asset class has been Australian shares, delivering a return of 30.2%. Over the last 20 years, the Australian share market has averaged a 9.6% return per annum.
On top of this, investing in local Australian shares provides an easier trading option. You’re investing locally, so you’re going to be managing your investments locally too, and you don’t need to worry about exchange rates.
US shares
The third best performing asset class in the 2021 financial year has been US Shares. They delivered a return of 29.1%, with a 20-year average of 10.8%.
Despite the last 18 months, the market shows us that investing in US shares can still be a sensible decision. It opens your investment options to new companies that aren’t available on the Australian exchange. By investing in US shares, you can access an even more diverse range of share options, diversify your portfolio even further
International shares
In the 2021 financial year, the fourth best-performing asset class has been international shares., retuning an average of 27.5%. Over the last 20 years, international shares have averaged a 7.9% return per annum.
Similar to investing in US shares, investing in international shares opens the doors to a far more diverse investment opportunity. However, it’s important to be mindful when investing internationally. While your options are much broader than if you simply focused on Australia, your money is now more reliant on foreign indexes. You’re now exposed to different economic forces, which can be both a benefit and a potential drawback.
International property
Investing in international property was one of the top five investments for Australians in 2021. It’s been seeing returns of 23.2% this year, with a 20-year return of 8.8%.
And despite the uncertainty of the past 18 months, investing in international property still provides benefits in diversifying your portfolio, providing a way to hedge against the Australian market. For example, say the Australian property market takes another downtown. Other markets might be on the right. So if you’ve got investments in international property markets, these can still provide returns, and your investment eggs aren’t all in one basket.
It also gives you the opportunity to take advantage of different international tax brackets, thereby potentially saving more than you would in Australia.
Cash
Cash is always considered a reasonably low-risk investment, and as such, it delivers somewhat lower returns. Cash investments saw a 0.1% return for the 2021 year so far, with a 4.9% 20-year average.
So while it doesn’t deliver large returns over the long term, it does give you the benefit of liquidity should you need it. Given this, cash is considered a safe option when looking to meet your short-term goals, with little risk.
Bonds
On the whole, bonds are a good asset class when looking for a secure and stable investment. And, given their nature, they’re likely to deliver a regular income stream too.
While a more safe option, however, it’s important to remember you receive the most benefits if you hold the bond to maturity. If you see the market dropping and sell bonds before they mature, they’re sold at the current market rate, meaning you can potentially lose money. So it’s always wise to wait until maturity, where at the very least you can receive the face value of the bond in return.
Australian bonds
Australian bonds had a dip in 2021, delivering -0.8% returns for the 2021 year, with a 7.4% 20-year average. But despite the weak year, history tells us that the market will rise again. This is a perfect example of holding bonds for the long term: it’s just a matter of waiting it out.
International Bonds
Similar to Australian bonds, international bonds also have a weak year. Weaker, in fact, delivering -1.5% returns for 2021, and a 7.7% 20-year average.
The final word
As you can see, the top investments for Australians in 2021 were ones that you may not initially have considered. So wherever you choose to invest your money, it’s wise to keep the following in mind:
- When looking at the best investments to make, it's important to look at the long-term average, and not just chase last year's best performer.
- By diversifying your portfolio outside of the usual Australian shares, property, and cash, it's possible to see higher annual returns and better diversification in your portfolio.
- Cash and fixed interest investments, like bonds, are returning low yields at the moment because interest rates are at record lows. While this is great for the property market, it’s not ideal news if you’ve invested significantly in these assets.
So with a little patience, and a solid investment plan, you’ll be able to make smarter investment choices in 2021 and beyond.
