why do people invest?
investors invest money to make more money. There are 2 ways:
- earning a return each year on the funds invested
- making a capital gain, the value of the investment may increase over time and then be sold for a higher price
what are 3 investment options?
- cash
- property
- shares
explain cash as an investment option.
putting money in the bank is the most basic and common form of investment. It is the least risky out of the 3 investment options.
what is a term deposit?
A bank may offer term deposits, it requires the investor to invest for a specified length of time. It will offer a higher interest rate but if you want to access the funds before the time period ends you may have to pay a penalty fee
explain property as an investment option?
buying real estate provides capital gain, and the risk level is in the middle of the 3. Capital gain is a return generated from an investment in the form of an increase in value of an asset.
What is negative gearing?
Some investors take out loans to purchase the investment house, they may choose to rent it out to tenants. The rental income the owner receives may be less than the loan repayments. The investors makes a ‘loss’ which reduces their taxable income.
what are the risks of property?
- property market fluctuates, growth rates vary according to location
- If interest rates rise buyers are less likely to borrow money
- Rent: owner may not find a tenant, bad tenants cause damage
- it is not liquid, gain is realised after sold
explain shares an as investment option
document that verifies part ownership in a public company, provides their holders with the right to receive a dividend. Profit made by a company that is paid to shareholders is called a dividend.
what are some benefits of shares?
- returns
- tax benefit : franking credit - dividend income that the company has already paid tax
- diversification, over 2,200 public company shares are listed on the ASX
- shares are liquid
what are risks of shares?
- dividend return is dependent on profits made by the company
- market fluctuations, value of shares change daily
- capital loss, incurred when asset is sold for a lower price than what it was bought for
what are factors that influence share price?
- economic outlook: inflation, interest rate, value of Australian dollar
- company news: change of management, profit, change in laws or regulation
- industry trends: how other companies are performing how the whole industry is performing
what are factors that could influence property price?
location ( close to school, shopping centre, hospital etc)
interest rates
population and demographics
property size and features
