Investing your Tax Savings

We recently wrote about the tax changes coming into effect from 1 July 2024 and the savings that this may provide. For more information on how these tax changes impact you, check out our article here. For most taxpayers, you will have more disposable income to invest and grow your wealth.

In this article, we explore how to invest your tax savings, the investment options available to you and the considerations you should make before investing.

Investment Options

Direct Shares and Managed Funds

We recently shared an article on investing in Direct Shares and Managed Funds, which included more details on how to invest in these options and the benefits and risks of each. For more information on these investment options, check out our article here.

Exchange Traded Funds

Exchange Traded Funds (ETFs) are a type of investment that allows you to buy and sell a basket of securities, including shares, fixed interest, commodities or currencies on a stock exchange and are commonly viewed as a blend between direct share ownership and managed funds.

ETFs usually track an index, such as the ASX200 or a sector, such as technology; or a theme, such as sustainability. ETFs offer a low-cost and diversified way to invest in a particular market or strategy, without having to buy individual shares. ETFs can also be traded throughout the day, unlike managed funds that have fixed prices at the end of each trading day.

Investment Bonds

Investment bonds are a type of long-term savings plan that let you invest your money in a range of assets, such as shares, property, or fixed interest. Investment bonds are issued by insurance companies and have some tax advantages over directly owning shares, managed funds and ETFs.

Investment bonds are suitable for investors who want to save for a long-term goal, such as retirement or education, and are willing to accept some risk and volatility in their returns, whilst investing in a tax-effective manner.

Micro Investing

Another way to invest your money is through micro investing, which is a method of saving small amounts of money regularly through an app or a platform. Micro investing lets you buy fractions of shares or exchange-traded funds (ETFs) with as little as $5 or $10 at a time. Micro investing can help you build good saving habits, diversify your portfolio, and take advantage of compound interest.

However, micro investing also has some limitations such as fees on each transaction and a lack of control over your investments. This option may be suitable for the beginner investor, or those wanting to start out their investment journey before progressing into other investment options.

Choosing the right investment option for you

Choosing to invest your tax savings outside of superannuation is one of many options we have recently explored and may be appropriate depending on your age, income, goals, timeframes and investment risk preferences. Key considerations should include:

• Set clear, realistic and timely goals – What is your purpose for investing? How much money are you investing and when do you want to access it? How much risk are you willing to take? How much control do you want over the investment process?

• Diversify your portfolio – Don’t go out and put all your tax savings into a single investment. Diversify your investment across different asset classes, sectors and geographies to reduce your exposure to specific risks and increase your long-term return.

• Contribute regularly – by investing a regular amount, on a regular basis into a pre-determined strategy, investors are often surprised by the amount accumulated over years or decades.

• Review your portfolio regularly – an investment strategy should not be ‘set and forget’. Monitor the performance of your portfolio and adjust as your needs and market conditions evolve.

• Seek professional advice – investing can be complex and challenging, particularly if you are new to investing or don’t fully understand all the options available. Additionally, financial advice can save you time and money in assessing your situation, developing a tailored plan and executing your investment preferences.

Investing your tax savings from 1 July 2024 can be a great way to boost your wealth and put you on the path to achieving your financial goals. You need to consider your options and choose the approach that best suits your needs and preferences. Feel free to reach out to us to discuss your individual goals and preferences to determine what options may be available to you.