Hi Prue – thank you for your question. You’re doing so well with your finances, so give yourself a big pat on the back. I see so many people (male and female) who are not in great financial shape but find it almost impossible to change habits and turn themselves around. It takes focus and commitment which you obviously have. The next step for you is to think about what you really want (income, security, capital growth, etc) and that will help focus your energy in the right direction.
When you’ve decided what your goals are, together with a timeframe it makes it much easier to determine the right course of action. You also need to consider your tolerance for losing capital, the need for wealth creation and the level of debt you’re comfortable with. Your answers to these questions will make the choices available much clearer.
When investing in a share portfolio the income generated (dividends) is taxable although many Australian shares have franking credits which helps reduce tax. A share portfolio is generally recommended for investors with a long timeframe of say 5 years or more due to the volatility of the share market and the risk of a loss over the short term. Diversification is important meaning a portfolio should hold a range of stocks across different companies and sectors. The cost of investing is limited to brokerage which is either a flat fee or a percentage of the portfolio balance.
An alternative to investing in direct shares is using managed funds. These are suitable for people requiring a diversified portfolio which would include Australian shares, together with International shares, property, fixed income and other investments. An initial investment as little as $1,000 can be made and regular amounts can be invested say monthly.
Investment in property involves larger sums of money due to the cost of property and therefore you would need to borrow funds. The first thing to do is research the loans available and how much a lender will allow you to borrow. It’s always good to do your own sums to see if you are actually comfortable with that level of debt and can meet the loan repayments. When doing your sums, allow a buffer to cater for interest rate increases and unexpected expenses. Costs of investing in property include stamp duty, legal/conveyancing fees, bank/loan fees and other various expenses. A deposit of 20 per cent is usually recommended so property investment might not be viable for you at this time.
When considering investment options, don’t forget to leave yourself a cash reserve for emergencies.
I hope this helps and please note that the information is general in nature and may change depending on your particular circumstances. Good luck and keep up the good work.