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Types of investment products

March 17th, 2009 at 07:11 am

There are several different types of investment products on the market and to choose one to suit you, your needs and goals must be thought through carefully. Most stable investments should be for the long term, that is 5 years or more - more is better.
Perhaps the most popular investment product would be superannuation. This is because of the tax savings that are significant and also the fact that the government will add more money for free if you salary sacrifice up to a certain amount. There is a limit, of course, but it is certainly worth the effort. Superannuation can be DIY (do-it-yourself) or done for you. The latter option is the easiest, though many people like the idea of DIY.
Other investment products that are easy to get into are those such as managed funds offered by banks or other financial institutions. All you need to do is create the account and have a minimum deposit in it. Because the money is pooled with that of other investors, these let you diversify your investments a great deal more than if you were investing on your own. Diversification is another word for safety, in investing. But since banks need to make money out of these investments too, your share may not be as significant as if you were doing your own investing. It will, however be safer - so long as you choose the safe option.
A term deposit is an investment product of a simpler kind. Here you simply park your money for your chosen time and then get paid a good interest rate on it when the maturity date rolls around. Even a savings account could be considered an investment product, though the rate of return on most is usually not significant.
A more complex investment product is sometimes quite difficult to understand. All investment products should come with a disclosure statement that tells you how your money will be invested, what returns will be generated and in what way they will be paid to you. If you cannot understand anything that is in the statement, you should seek the advice of a professional or else don’t go ahead with it.
You need to know if you can get your money back early if necessary and if so, what fees apply. If you want to sell your investment, is there a ready market that enables you to do so? And it is wise to choose a product that is issued by a person or company that holds an Australian Financial Services license.
Remember that the better the expected return on your investment is, the higher the risk is likely to be.

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