There are many ways to make online investments in Australia, ranging from Shares (Stocks), Cash and Fixed interest, Bonds, Precious metals like Gold, Diversified Property securities, and finally one of my absolute favorites – digital businesses and websites. This article will explore how you can invest online into these asset classes, and how I personally do so.
Shares are one of the easiest forms of online investment in Australia. I have written extensively about my experience doing this and how you can buy simple, broad market index funds like Vanguard ETFs. I started my online investing journey in Australia in managed funds (and technically also in my superannuation), transitioned briefly to stupidly trying to pick stocks with tips from newsletters (under performing the market), and then finally made the important realisation that an indexing approach is the safest and smartest method for someone like me to make my online investments in shares.
Once you find a good online stock broker that you like, its very straightforward to set up a buy order to get shares in your name. You can find guides on how to do this here on the blog, as well as reviews of all the leading share trading platforms.
Online Investment in Australia: Bonds
Bonds cover a broad range of investing options, but it typically refers to a fixed interest contract or loan – similar to a term deposit with a bank. This is one of the ways companies or organisations are able to raise capital to expand their business or fund projects – they borrow it via a bond, with a promise to repay the loan at the end of the term, along with some interest along the way (the other way is by issuing shares in the company).
This interest payment used to be called a ‘coupon’, and the interest was referred to as the ‘coupon rate’, because the bond itself was a physical certificate which could be presented to the bank or financial institution which would be clipped to show that the interest or coupon had indeed been claimed for that period.
Bonds then are essentially loans, and you can enter into these loans in a broad variety of ways. There are corporate bonds issued by businesses, government bonds issued by a governments treasury department. These bonds can range in quality and interest (or coupon) rates, typically, along the risk-reward spectrum – the riskier the bond, the higher the interest rate you get paid. This is because with a risky borrower you might lose your capital (the bond) if they default or their business collapses – so you get paid accordingly more for taking the risk, to try and recoup your investment earlier.
Bonds are typically rated by rating agencies or analyst firms (like KPMG, Morningstar or Fannie Mae) and get allocated a Bond Credit Rating ranging from CCC to AAA scores – although different agencies might use other terminologies such as A- or A+.
“The bond credit rating represents the credit worthiness of corporate or government bonds. It is not the same as an individual’s credit score. The ratings are published by credit rating agencies and used by investment professionals to assess the likelihood the debt will be repaid.”Wikipedia definition of Bond Credit Raing
Just like Shares, you can invest in individual bonds through a Securities Exchange like the ASX, or you can get exposure to them through managed funds run by investing firms or banks. To be honest, I think the best way to access bonds is probably through an bond index ETF, like the Vanguard Australian Government Bond Index ETF (ASX:VGB), or the Vanguard Global Aggregate Bond Index (Hedged) ETF (ASX:VBND) but Vanguard also offer versions of these as wholesale bond index managed fund investment options too. With the index funds you benefit from broad bond market indexing and the risk of an individual bond defaulting doesn’t bother you too much since any one bond is usually a very small portion of the entire fund.
Currently with record low interest rates, bond interest rates are excruciatingly low and they don’t really make much sense as an investment vehicle to me at the moment. As interest rates rise, older bonds with lower coupon rates typically drop in value (for bond holders) because new bonds with higher interest rates are issued and these provide a higher income stream to investors – although companies and governments who have secured bonds with lower interest rates obviously benefit from this situation and they can use these ‘cheap loans’ to their advantage.
There is also a form of bond called an insurance bond, or investment bond, which works very differently to a conventional bond or fixed interest contract. It is actually closer to a long term commitment into managed fund, and offers some unique tax effective income structures.
“An insurance bond, also known as an investment bond, is an insurance-related investment vehicle used primarily in the United Kingdom and Australia. The insurance bond is an investment instrument offered by life insurance companies in the form of a whole life or term life insurance policy. Insurance bonds best suit investors who use them for estate planning or who are interested in long-term investing. Also, insurance bonds have some tax advantages. “Investopedia Insurance Bond definition
Insurance bonds are long term investments where your money is pooled with other bond holders and invested according to the terms of the bond. Currently there are some significant tax advantages for high income earners if you hold the bond for 10 years and meet conditions of the bond, which can include making additional contributions. GenLife is a main provider of insurance bonds in Australia, and there is also a great episode of the Aussie Firebug podcast which delves a bit more into this.
Online Investment in Australia: Cash
Online banks usually offer the best rates for online savings bank accounts, but you can always also choose to invest into money markets or fixed interest funds, too. Vanguard offer a fixed interest index ETF in Australia – the Vanguard Australian Fixed Interest Index ETF (ASX:VAF), which can be bought or sold just like a share or any other index fund. If you ask me though, cash is a poor investment and I personally am not holding much cash at all – I would rather have it invested.
Online Investment in Australia: Gold
If you really want to, you can buy gold or other precious metals online. I personally don’t do this, but the best way I figured out to do so was through a Gold ETF. The best one I found was Perth Mint Gold (ASX:PMGOLD) which you can actually convert to actual physical gold if you want to by surrendering your shares. Having said that, I don’t currently invest in gold and would rather have my money invested in profitable buisneses through index share ETFs and LICs.
Online Investment in Australia: Property
Online investments in property can be pretty daunting for some, but some experienced property investors like Smashed Avo are more than happy to buy a house online, sight unseen. For beginners though, this is a pretty risky option – an alternative to gain exposure to the property market online is through a share in a Real Estate Investment Trust (REIT) – or ‘A-REITs’ as they are sometimes called in Australia.
These are companies which essentially allow investors to pool their money together and use their collective purchasing power to buy lots of properties – and not just low cost residential housing either – some A-REITs control some of the biggest and most expensive real estate in the country. These include;
- Retail property: Shopping centers (Malls), Grocery stores, Department Stores, Hardware Stores, Outlet stores and Markets
- Industrial property: Factories, Construction facilities, Warehouses and Logistics / Distribution centers
- Residential property: Freestanding homes, Apartment buildings, Duplexes and Student accommodation
- Office buildings: Office parks and business centers right through to skyscrapers
Some of these are privately owned companies, and some are publicly traded on the stock market through the Australian Securities Exchange. For Example, the Bunnings Warehouse Property Trust (ASX:BWP) controls over (AUD) $2.6 Billion of real estate – which they lease to Bunnings Warehouse hardware stores. BWP buys the land, builds the shed, sets the terms of the rental leases, collects the check, reinvests some of it into new developments and then distributes the left over as a dividend to its constituent shareholders.
Not all A-REITs hold property, and some are actually just big development corporations which gobble up cheap land releases through negotiations with councils and state government. Remember, although it seems criminal to gift hundreds of millions of dollars worth of real estate to a company, it is in the governments interest for land to be developed because the developed land is then subject to council rates and property taxes, providing guaranteed income to the government and councils which can be spent politically.
Developers can then either turn around directly and on sell this land, ‘land bank’ (hold onto it because they know it will go up in value) or start developing and seeking legal approvals for zoning and building. The land can be sold for significant profits once development approvals have been made, or once it has been sub divided into smaller lots. For some projects, developers will work with builders to either sell ‘off the plan’ designs such as residential housing, or physically build a site (Apartment complex or shopping center) and then either hold onto the asset or sell it to another REIT, private equity firm or superannuation fund.
This is a highly profitable game, and property development is a major part of the Australian economy.
There are a lot of other A-REITS which you can check out. Some of the most notable, and probably names you might recognize from banners, construction sites and shopping malls at the time of writing (and rough assets under management) include;
- Goodman Group: (AUD) $55 Billion in assets
- Scentre Group (AUD) $55 Billion in assets
- DEXUS Property Group (AUD) $34 Billion in assets
- Mirvac Group (AUD) $18 Billion in assets
- Stockland Corporation (AUD) $18 Billion in assets
- GPT Group (AUD) $25 Billion in assets
- Charter Hall Group (AUD) $40 Billion in assets
- Shopping Centres Australia (AUD) $3.2 Billion in assets
- BWP Trust Retail (AUD) $2.4 Billion in assets
- Growthpoint Properties Australia (AUD) $300 Million in assets
- Westfield: (AUD) $29 Billion in assets
It is worth noting that the assets under management is different to the market capitalization or size of the company, however its pretty impressive!
I personally invest in real estate directly myself, where I can use leverage to maximise my cash flow – so I have no need to directly invest in REITs. However, I invest in broad market stock Index funds across global markets, which includes some REITs (for example, REITs make up about 3% of the US S&P 500 index).
Online Investment in Australia: Digital Business
This is a very interesting topic, and one which I will expand on with dedicated articles in the near future.
There are many ways which you can invest in online or digital businesses in Australia, and this can be a very powerful tool to reach Financial Independence if done correctly. I have been experimenting with this, building a portfolio of profitable websites myself, and honestly I have had to pinch myself when I have seen the literal checks in the mail and the cash being deposited into my bank accounts. Before we get too wrapped up in my story though, lets cover some of the basics of online businesses in Australia. There are a few ways to invest in online business in Australia, including;
- Partnering or Investing directly with a start up or established company which operates in the online space
- Buying a website (digital property) from places like Flippa and monetising it
- Designing, Building and operating your own website (digital property) and monetising it
- Growing a large following on social media (such as Instagram or Facebook) and then monetising it
So whats the common denominator and easiest way to stay in control? Creating content, getting online traffic, and monetising it. There are many ways to monetize your online business, and examples include;
Advertising partners – Sell advertising space on your website (or social media) to advertising agencies: The easiest way is Google Adsense, and then later you can upgrade to MediaVine for when you have more traffic (MediaVine will pay higher commissions). There are a number of advertising agencies other than these two which can offer bespoke advertising services for unique industries with great commissions. I currently use Google Adsense on all of my sites.
Direct advertising – Sell advertising directly to companies and skip the middle man. I currently directly advertise with some businesses where I charge a monthly flat fee for a banner, side bar or injected advertisement on certain parts of the websites. Ideally you want to transition from advertising partners like Google Adsense into direct advertising contracts – it makes the site a lot cleaner, and it is more profitable.
Affiliate marketing – this is a form of marketing where you refer a product and usually for each sign up or sale, you receive a small commission or bounty. I participate in some affiliate marketing programs, but only where I really like the product. Affiliate marketing is super easy and the simplest one to use is the Amazon affiliates program where you typically receive 1-4% of the final sales price as a commission. However, remember that affiliate programs aren’t very lucrative, and really you are just making a shit load of money for your affiliates and not much for yourself – so don’t go overboard.
Digital products – You could offer digital products such as courses, guides, coaching or eBooks – this is essentially content that you have hidden behind a paywall. For example, you can download the Aussie FIRE eBook from this website for free when you subscribe to the CaptainFI mailing list – but some other bloggers will make you pay for this.
E-commerce – E-commerce covers the selling and shipping of physical products online. Examples include Drop shipping and arbitrage, but you could also work with a partner like Teespring or Redbubble which are Print on Demand services which you could use to sell T-shirts, Stickers or other merchandise which you design. Personally I don’t do e-commerce anymore because I found it took a lot of time, the risk was high (if a product is crap it will ruin your reputation and you have very little control over the quality aspect) and I wasn’t very successful.
Lead gen. Lead Generation is a very powerful tool where you essentially ‘rustle up’ business for a company. It is essentially a form of affiliate advertising really, and is typically related to your core blog content or niche. For example, on my Aviation blog I talk a lot about different flight schools because this is one of my areas of expertise. I get inquiries all the time about what particular school should a student use, or what degree or course they might start. Because the cost of training for commercial pilots can be well over $100,000 and take many years, these referrals are actually quite valuable for the schools. I am able to sell these ‘leads’ to certain businesses. But it is not just flight schools, we have done this with many other niches such as mechanics and automotive garages and it is very easy to create a business directory or lead generation site for local businesses. Even here on Captain FI I have had many financial advisors, estate planners and property agents etc ask to set up lead gen deals with them (but I do not currently do this here).
There are many ways to make online investments in Australia, ranging from Shares (Stocks), Cash and Fixed interest, Bonds, Precious metals like Gold, Diversified Property securities, and finally one of my absolute favorites – buying or building digital businesses and websites. Hopefully this helped you understand some of the options available for you to invest your money online, and you got something out of seeing the way I personally invest my money online.