It's never too late to start

Hesitancy to begin or learn about investing later in life can be traced back to a major misconception that investing always comes with a high level of risk or that unless you have decades ahead of you it won’t make a perceivable difference.

While it is true that any investment other than cash in the bank (up to $250,000) comes with a degree of risk there are ways to invest conservatively that still deliver reasonable returns which is increasingly relevant in an environment with low interest rates and growing inflation.

How do you invest conservatively?

Before answering this, we’ll take a very quick step back and mention that there are multiple areas where you can invest referred to “asset classes” and they are:

• Australian Shares
• International Shares
• Property & Infrastructure
• Fixed Interest (Bonds)
• Cash

Asset classes are classified as either growth focused (high risk) or defensively focused (low risk).  

Australian and international shares are considered growth focused having higher risk.

Fixed interest and cash are considered defensively focused having lower risk.

Property and infrastructure are uniquely classified as an even split between the two.  

Armed with this information you can construct a conservative portfolio with more significant exposure to more stable, defensive assets which will minimize risk but also have a smaller exposure to growth assets that provide opportunity for growth.

You can see how we have constructed our Conservative Portfolio by clicking here.

Define a “reasonable return”

Every investor will structure their portfolio slightly differently so the best way to consider a historical return is looking at an index.

Indexes are theoretical investments with zero fees or costs attached that measure the return of a standardized portfolio of holdings and they are often used by professional investment managers to benchmark their performance.

Below are some key metrics for an index used by nearly 500 conservative funds in Australia, but as always please note that past performance is no guarantee for future performance.

Putting it into real terms

Using these figures as an assumption we can estimate what this could have meant in real dollar terms if you had $100,000 or $250,000 tucked away for a rainy day not needing to be touched for five or ten years.

When you compare this to the rate of return in a savings account or term deposit it is something certainly worth investigating.

If you’d like to chat about lower risk investments further feel free to pop over a message to invest@investsmart.com.au but please remember we cannot offer any personal financial advice.