High-risk investments can play a role in some portfolios, but they aren’t right for everyone…
Different types of investments in Australia: a simple guide to building wealth
There are various different types of investments available in Australia, but no single option suits everyone. The right mix of investments depends on your financial goals, time horizon, need for cash access, and comfort with risk.
In most cases, strong long-term outcomes come from building a diversified portfolio across multiple asset classes rather than relying on a single investment vehicle.
In this guide, we focus on some of the most common and foundational investment types people use to build long-term wealth, generate income, and manage risk.
A quick comparison of common investment types
| Cash investments | Low risk, short-term, high liquidity |
| Bonds and fixed income | Low to medium risk, short to medium-term, moderate liquidity |
| Shares | Higher risk, long-term, high liquidity for listed shares |
| Real estate | Medium to high risk, long-term, low liquidity |
| Exchange-Traded Funds (ETFs) | Risk depends on what they hold, often suited to medium to long-term investing |
| Managed funds | Risk depends on the fund strategy, usually medium to long-term |
| Superannuation | Long-term investing for retirement, access is generally restricted until a condition of release is met |
| Other investments, such as commodities and cryptocurrencies | Often higher risk and more specialised |
#1. Cash investments
Cash investments are low-risk assets such as savings accounts, high-interest savings accounts and term deposits that pay interest on your balance.
How they work
You deposit money with a bank or similar institution and receive interest income. Cash is usually the most accessible investment option, which is why it is often used for emergency funds or short-term goals. Term deposits usually pay a fixed rate for a set period, while savings accounts may have variable rates and conditions.
Risk, return and liquidity
Cash investments are generally lower risk and highly liquid, but they also tend to offer lower long-term returns than growth assets such as shares. One of the main risks is that inflation can erode purchasing power over time.
Who they suit
Cash may suit investors with short time horizons, lower risk tolerance, or a need to keep money readily available.
Key pros and cons
Pros include stability, easy access and simple structure. Cons include lower return potential and the risk that your money may not grow faster than inflation.
Portfolio role: Cash can add stability and liquidity to a balanced portfolio, especially for short-term needs.
#2. Bonds and fixed income
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Bonds are investments where you are essentially lending money to a government or company in exchange for regular interest payments and the return of principal when the bond matures.
How they work
A bond’s face value is the amount you are repaid at maturity. Its coupon is the regular interest payment. In Australia, government bonds are a common example of fixed-interest, or fixed-income, investing. Bonds can be bought and sold before maturity, so their market value can rise or fall.
Risk, return and liquidity
Bonds are generally considered lower risk than shares, but they are not risk-free. Key risks include issuer default and interest rate sensitivity. If rates rise, existing bonds with lower coupons can fall in value. Historically, government bonds have usually delivered lower returns than shares, but with less volatility.
Who they suit
Bonds may suit investors looking for more predictable income, lower volatility, or a defensive allocation in their portfolio.
Key pros and cons
Pros include regular interest payments and lower volatility than shares. Cons include lower growth potential and the risk of loss if sold before maturity at a lower market price.
Portfolio role: Bonds can provide income and help offset some of the volatility that comes with growth investments.
#3. Investing in shares
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Shares are investments that give you part ownership in a company listed on a stock exchange, such as the Australian Securities Exchange.
How they work
When you invest directly in shares, your return can come from dividends and capital gains if the share price rises. Shares are one of the best-known growth investments, but prices can move up and down quickly.
Risk, return and liquidity
Listed shares are usually easy to buy and sell, making them relatively liquid. But they are also riskier than cash or many bond investments.
The biggest callout here is market volatility. You can lose money, especially over short periods or if you need to sell in a downturn. Over the long term, shares have historically offered stronger return potential than defensive assets, but with more ups and downs along the way.
Who they suit
Shares may suit investors with a longer time horizon who are comfortable with short-term market movements in exchange for stronger long-term growth potential.
Key pros and cons
Pros include growth potential, dividend income and liquidity. Cons include volatility, concentration risk if you hold too few companies, and tax implications when you sell.
It’s important to note that in Australia, capital gains tax can apply when you sell shares, managed funds or an investment property at a profit.
Portfolio role: Shares can drive long-term capital growth in a diversified portfolio.
#4. Investing in real estate
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Real estate investing means buying property, such as residential properties or commercial property, with the aim of earning rental income, capital growth, or both.
How it works
Property investors may earn passive income from rent and may benefit from price growth over time. But property also comes with purchase costs, ongoing expenses, maintenance, vacancy risk and financing risk.
Risk, return and liquidity
Property is usually less liquid than listed assets. Selling takes time, and costs can be high. It can also be highly geared, which magnifies both gains and losses. Risks include tenant vacancies, falling property values, rising interest rates and cash flow pressure if costs exceed rental income.
Who it suits
Real estate may suit investors who want a tangible asset, can manage higher upfront costs, and are comfortable with a longer holding period.
Key pros and cons
Pros include rental income potential, leverage and long-term capital growth. Cons include low liquidity, high transaction costs, concentration risk and ongoing management demands.
Portfolio role: Property can add income and diversification, but because it is large and illiquid, it should usually be weighed carefully against your broader portfolio.
#5. Exchange-Traded Funds (ETFs)
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Exchange-Traded Funds (ETFs) are pooled investments that trade on the stock exchange and usually track an index, sector, commodity or basket of assets.
How they work
When you buy an ETF, you buy units in a fund rather than owning each underlying asset directly. The NAV is the value of the fund’s assets minus liabilities, divided by the number of units. The iNAV is a real-time estimate of that value during the trading day.
Risk, return and liquidity
ETF risk depends on what the fund holds. A broad index fund ETF can be diversified and relatively low-cost, but it still carries market risk. A niche ETF focused on one specific market or commodity can be much riskier. There is also tracking risk, meaning the ETF return may not perfectly match the index it follows.
Who they suit
ETFs may suit investors who want broad market exposure, lower management costs and easy trading through the ASX.
Key pros and cons
- ETFs are listed on the stock exchange and can be traded during the day
- Managed funds are usually unlisted and typically priced once a day
- ETFs often have lower ongoing fees, while managed funds may offer more active management
- ETFs usually offer more trading flexibility, but brokerage fees may apply
Portfolio role: ETFs can be a practical way to build diversification across markets and asset classes without selecting every holding yourself.
#6. Managed funds
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A managed fund pools money from many investors and gives a professional manager responsibility for making the investment decisions.
How they work
The fund manager buys and sells assets, such as shares, bonds, cash, or property, on behalf of investors. Managed funds can be active or passive, and fees vary depending on the strategy.
Risk, return and liquidity
Risk depends on the assets held by the fund. A conservative fund will behave very differently from a high-growth share fund. Key callouts include management fees, performance variation, and reliance on the manager’s quality and the fund’s process.
Who they suit
Managed funds may suit investors who want professional management or access to assets they would not normally buy on their own.
Portfolio role: Managed funds can help investors access diversification and professional oversight, especially in parts of the market that are harder to research alone.
#7. Superannuation and other investments
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Superannuation is a long-term retirement investment structure, not a single asset class. Your super fund can invest in cash, bonds, shares, property and other assets on your behalf.
Super is often one of the largest investments Australians hold, so your chosen investment option inside super matters. Most funds offer a range from conservative to growth. Access is generally restricted until you reach a condition of release, and for many people, the relevant preservation age is 60.
There are also other investments worth mentioning, including commodities and cryptocurrencies. These can play a role for some experienced investors, but they usually involve a higher level of risk. ASIC’s Moneysmart says most crypto-assets are high-risk investments and are not the sort of investment to use to build your savings.
Portfolio role: Super is often the core long-term retirement vehicle, while higher-risk alternatives should usually remain a smaller, deliberate part of a broader strategy.
How to choose between different types of investing
When comparing the different types of investing, start with three questions.
- What is the money for, and when will you need it? Short-term goals often call for lower-risk, more liquid investments. Longer-term goals can usually tolerate more volatility.
- How much risk can you handle, both financially and emotionally? A portfolio only works if you can stay invested through market swings.
- Are you diversified enough? Spreading money across different asset classes can help lower portfolio risk and smooth returns over time.
Understanding the different types of investments is a strong first step, but investment success usually comes from how those options work together. Cash can provide liquidity. Bonds can add stability and income. Shares can drive growth. Property can add income and diversification. ETFs and managed funds can broaden market access. Super can support long-term retirement goals.
The best portfolio is rarely built around a single investment type. A thoughtful mix of assets, aligned to your goals and risk tolerance, can help you manage uncertainty and build wealth over time.
If you want help turning that into a practical strategy, talk to the Elliot Watson Financial Planning team about the right investment mix for your situation!
Disclaimer:
The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information, you should consider its appropriateness regarding your objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of the licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the author’s express written consent. Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
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