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I'm a final year University student with about 50k (AUD) in the bank earning interest at 2.8%.

I have nearly finished my paid full time placement which is why I have a lot of money currently as I did not work very much before this, I will be unemployed soon as I will be going back to university. I am thinking of looking for casual work but may or may not as I will need to dedicate considerable time and effort into my studies so as to do well.

What can I/should I do with my money?

I like putting it in the bank as I know it's guaranteed but 3% is insanely low. What options do I have that are largely risk free?

Note: I'm 23, living with parents.

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    It probably depends on when do you think you are going to need that money. – tomasz Oct 13 '15 at 2:00
  • @tomasz I suppose I should mention that I'm 23 and living at home with no plans to move out anytime soon, rent free is nice :) I don't think there's a need for a large amount of money in the foreseeable future – Aequitas Oct 13 '15 at 2:04
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    Not insanely low, I am currently earning .009% on savings and happy to get it. – Pete B. Oct 13 '15 at 13:04
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    Maybe I need to move my savings to Australia. I have high-yield at .9% – AbraCadaver Oct 13 '15 at 15:48
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    3% is insanely low?! Our local credit union has great rates, comparatively, and their 5 year CD gives just above 2%. I'm getting .3% right now on my regular savings account with them, which is much better than I could get most other places around here. – neminem Oct 13 '15 at 17:34
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I don't think blanket answers are very helpful. You are asking the right question when you are young!

You have a large number of investment options and Australia has the Superannuation system that you can extract significant tax value from.

  • Day trading on the stock market
  • Short term stock market trading
  • Long term stock market investing
  • Stock Market "short" trading
  • Foreign currency exchange
  • Echange Traded Funds
  • Property investment. Comes in a few forms :- buy-to-let, fixer-upper, capital
  • Real Estate Investment trust (REIT)
  • Bonds
  • Superannuation (AU pre tax savings vehicle), Pension (UK pre tax savings vehicle)
  • ISA/NISA (UK post tax savings vehicle)
  • Starting and running a business
  • Investing in an existing business
  • Keeping it in "Cash"
  • Life, employment and health insurances

I've not attempted to grade these with regard to "risk", as different people will rate various things with different levels, depending on their experience and knowledge.

Consider the following factors for you:-

  • Timing. When do you think you might need the money? You should consider saving some for retirement, some for medium term (say 10-20 years time - your children's (that you probably won't have yet) education) and some for short time (say 5 years time - holidays, new car).
  • Risk. Consider are you a risk adverse person or a risk taking person? Also it is usual that the risk profile of your investments change through your life, starting with higher risk, changing to lower risk
  • Lifestyle. How much money do you need to live? Will you take international holidays each year? Do you want to own a second house? What will you need when you retire, how much to finance what life style?
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My advice would be to invest that 50k in 25% batches across 4 different money markets.

Batch 1: Lend using a peer-to-peer account - 12.5k The interest rates offered by banks aren't that appealing to investors anymore, at least in the UK. Peer to peer lending brokers such as ZOPA provide 5% to 6% annual returns if you're willing to hold on to your investment for a couple of years. Despite your pre-conceptions, these investments are relatively safe (although not guaranteed - I must stress this). Zopa state on their website that they haven't lost any money provided from their investors since the company's inception 10 years ago, and have a Safeguard trust that will be used to pay out investors if a large number of borrowers defaulted. I'm not sure if this service is available in Australia but aim for an interest rate of 5-6% with a trusted peer-to-peer lender that has a strong track record.

Batch 2: The stock market - 12.5k An obvious choice. This is by far the most exciting way to grow your money. The next question arising from this will likely be "how do I pick stocks?". This 12.5k needs to be further divided into 5 or so different stocks. My strategy for picking stock at the current time will be to have 20% of your holdings in blue-chip companies with a strong track record of performance, and ideally, a dividend that is paid bi-anually/quarterly. Another type of stock that you should invest in should be companies that are relatively newly listed on the stock market, but have monopolistic qualities - that is - that they are the biggest, best, and only provider of their new and unique service. Examples of this would be Tesla, Worldpay, and Just-eat. Moreover, I'd advise another type of stock you should purchase be a 'sin stock' to hedge against bad economic times (if they arise). A sin stock is one associated with sin, i.e. cigarette manufacturers, alcohol suppliers, providers of gambling products. These often perform good while the economy is doing well, but even better when the economy experiences a 2007-2008, and 2001-dotcom type of meltdown. Finally, another category I'd advise would be large-cap energy provider companies such as Exxon Mobil, BP, Duke Energy - primarily because these are currently cheaper than they were a few months ago - and the demand for energy is likely to grow with the population (which is definitely growing rapidly).

Batch 3: Funds - 12.5k Having some of your money in Funds is really a no-brainer. A managed fund is traditionally a collection of stocks that have been selected within a particular market. At this time, I'd advise at least 20% of the 12.5k in Emerging market funds (as the prices are ridiculously low having fallen about 60% - unless China/Brazil/India just self destruct or get nuked they will slowly grow again within the next 5 years - I imagine quite high returns can be had in this type of funds). The rest of your funds should be high dividend payers - but I'll let you do your own research.

Batch 4: Property - 12.5k The property market is too good to not get into, but let's be honest you're not going to be able to buy a flat/house/apartment for 12.5k. The idea therefore would be to find a crowd-funding platform that allows you to own a part of a property (alongside other owners). The UK has platforms such as Property Partner that are great for this and I'm sure Australia also has some such platforms. Invest in the capital city in areas as close to the city's center as possible, as that's unlikely to change - barring some kind of economic collapse or an asteroid strike.


I think the above methods of investing provide the following: 1) Diversified portfolio of investments 2) Hedging against difficult economic times should they occur

And the only way you'll lose out with diversification such as this is if the whole economic system collapses or all-out nuclear war (although I think your investments will be the least of your worries in a nuclear war). Anyway, this is the method of investing I've chosen for myself and you can see my reasoning above. Feel free to ask me if you have any questions.

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    None of these options are "largely risk free". – Chris W. Rea Oct 23 '15 at 23:38
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    Investing isn't a risk-free endeavour. A combination of these options will contain risk and hedge against negative economic events so you lose as little as possible. – Umair Oct 24 '15 at 18:39
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    I disagree that the combination you recommended constitutes a well-diversified portfolio for somebody seeking a "largely risk free" portfolio. For instance, I would have included some cash, short-term deposits, and bonds in the mix. Very little above is "investment grade". – Chris W. Rea Oct 24 '15 at 18:46
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    I got the impression that the original poster isn't looking for the kind of returns the markets you mentioned will provide for him, as he's already receiving the same low returns from lending with the bank. If he was to put his money in cash, short-term deposits, and bonds, I don't think they will get him a larger than 3-5% return per annum unless he goes for the riskier bonds. But who knows, I could be wrong. – Umair Oct 24 '15 at 20:51
  • I had written to include "some" of those things. Everything in cash, short-term deposits, and bonds wouldn't be well-diversified, either. – Chris W. Rea Oct 25 '15 at 2:07
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Some of the other answers recommended peer-to-peer lending and property markets. I would not invest in either of these. Firstly, peer-to-peer lending is not a traditional investment and we may not have enough historical data for the risk-to-return ratio. Secondly, property investments have a great risk unless you diversify, which requires a huge portfolio. Crowd-funding for one property is not a traditional investment, and may have drawbacks. For example, what if you disagree with other crowd-funders about the required repairs for the property?

If you invest in the property market, I recommend a well-diversified fund that owns many properties. Beware of high debt leverage used to enhance returns (and, at the same time, risk) and high fees when selecting a fund. However, traditionally it has been a better choice to invest in stocks than to invest in property market. Beware of anyone who says that the property market is "too good to not get into" without specifying which part of the world is meant. Note also that many companies invest in properties, so if you invest only in a well-diversified stock index fund, you may already have property investments in your portfolio!

However, in your case I would keep the money in risk-free assets, i.e. bank savings or a genuine low-cost money market fund (i.e. one that doesn't invest in corporate debt or in variable-rate loans which have short duration but long maturity). The reason is that you're going to be unemployed soon, and thus, you may need the money soon. If you have an investment horizon of, say, 10 years, then I would throw stocks into the mix, and if you're saving for retirement, then I would go all in to stocks.

In the part of the world where I live in, money market funds generally have better return than bank savings, and better diversification too. However, your 2.8% interest sounds rather high (the money market fund I have in the past invested in currently yields at 0.02%, but then again I live in the eurozone), so be sure to get estimates for the yields of different risk-free assets.

So, my advice for investing is simple: risk-free assets for short time horizon, a mixture of stocks and risk-free assets for medium time horizon, and only stocks for long time horizon.

In any case, you need a small emergency fund, too, which you should consider a thing separate from your investments. My emergency fund is 20 000 EUR. Your 50 000 AUD is bit more than 30 000 EUR, so you don't really have that much money to invest, only a bit more than a reasonably sized emergency fund. But then again, I live in rental property, so my expenses are probably higher than yours. If you can foresee a very long time horizon for part of your investment, you could perhaps invest 50% of your money to stocks (preference being a geographically diversified index fund or a number of index funds), but I wouldn't invest more because of the need for an emergency fund.

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If you are in an economy which has a decent liquid debt market (corporate bonds, etc.), then you may look into investing in AA or AA+ rated bonds. They can provide higher returns than bank deposits and are virtually risk-free. (Though in severe economic downturns, you can see defaults in even very high-rated bonds, leading to partial or complete loss of value however, this is statistically quite rare).

You can make this investment through a debt mutual fund but please make sure that you read through the offer document carefully to understand the investment style of the mutual fund and their expense ratio (which directly affect your returns). In any case, it is always recommended to reach out to an investment adviser who is good with local tax laws to minimize taxes and maximize returns.

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Edit: I a in the United States, seek advice from someone who is also in Australia.

I am getting about 5.5% per year by investing in a fund (ticker:PGF) that, in turn, buys preferred stock in banks. Preferred stock acts a bit like a bond and a bit like a stock.

The price is very stable. However, a bank account is FDIC insured (in the USA) and an investment is not. I use the Reinvestment program at Scottrade so that the monthly dividends are automatically reinvested with no commission. However I do not know if this is available outside of the United States.

Investing yealds greater returns but exposes you to greater risk. You have to know your risk tolerance.

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    This one-size answer doesn't fit here. Preferred-stock denominated in USD is nowhere close to "largely risk free" for someone who has Australian dollars to invest. If, say, commodity prices start going up, then it's likely AUD would rise vs. USD, and the investment you suggested could end up being a big money-loser due to currency fluctuation, even if the dividends remain consistent and the stock price doesn't drop at all. I'm Canadian and painfully aware of currency risk when it comes to buying USD-denominated securities. Australians should be similarly concerned when the goal is lower risk. – Chris W. Rea Oct 13 '15 at 22:54

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