Types of investments and returns

Investments can be classified as defensive or growth investments.

Defensive investments

Defensive investments are lower risk investments. They aim to provide income and protect the capital invested. Defensive investments include cash and fixed interest investments.

They're typically used to:

• Meet short-term financial goals (up to two years).
• Diversify a portfolio.

Investment	Characteristics	Risk, return and investing time frame
Cash	Includes bank accounts, high interest savings accounts and term deposits. Used to protect wealth and diversify a portfolio.	Average return over last 10 years: 3% per year Risk: very low risk of losing money Time frame: short term, 0–3 years
Fixed interest	Includes government bonds, corporate bonds, debentures and capital notes. Used to earn a steady rate of income and diversify a portfolio.	Average return over last 10 years: 3–4% per year Risk: low risk of losing money Time frame: short term, 1–3 years

Growth investments

Growth investments are higher risk and offer a higher potential return compared to defensive investments. They aim to give capital growth and some provide income (for example, dividends for shares or rent for property). But, the price of growth investments can be volatile over short periods of time.

Growth investments are typically used to:

• Earn a higher rate of return (but this comes with higher risk).
• Meet longer term financial goals, five years or more.

Growth investments include shares, property and alternative investments.

Investment	Characteristics	Risk, return and investing time frame
Property	Includes investing in residential and commercial property. Used to earn a steady rate of income (rent) and offer capital growth.	Average return over last 10 years: 6.3% per year Risk: medium to high Time frame: long term, at least 5 years
Shares	Investing in a company. You get to vote on management and share in the profits. Offer capital growth and some provide income (dividends).	Average return over last 10 years: 6.5% per year (Australian shares) Risk: high Time frame: long term, at least 5 years
Alternative investments	Includes private equity, infrastructure, commodities and other investments that don’t fall into the investment classes above. Most aim to provide capital growth. Some have the potential for steady income.	Most alternative assets are high risk. Returns differ depending on the type of alternative investment.

How to choose your investments

Before you invest, make sure you research your investment to understand:

• How the investment works.
• How it generates a return and the type of return expected (capital gain or income).
• The risks involved for the investment.
• The fees and charges for buying, holding and selling the investment.
• How long you should invest to receive the expected return.
• Legal and tax implications of the investment.
• How the investment will contribute to your diversified portfolio.

You can find this information in the product disclosure statement (PDS). 

If you need help choosing the right investments, get financial advice.

Decide how you'll invest

When it comes to investing you need to decide whether you'll:

• do it yourself, or
• pay a professional to do it for you

Both options have their pros and cons — and you can, of course, do both.

Buy and sell investments yourself

The advantage of investing yourself is that you're in control of all the decisions. It can also be cheaper than paying someone to invest your money. The risk is that you may overrate your expertise and may not diversify.

If you invest directly, it's important to plan and put in the time to research your investments. You should also keep track of how they're performing.

Use a professional investment manager

If you invest in a managed fund, some managed accounts, exchange-traded fund (ETF) or a listed investment company (LIC) your money is pooled with other investors. A professional investment manager then buys and sells investments on your behalf.

When you use a professional, you benefit from their skills and knowledge to make investment decisions. But you have to pay fees for this service. These can include management fees, administration fees and entry and exit fees.

See managed funds and ETFs to learn more about these investments.

Investing with a financial adviser

A financial adviser can help you set your financial goals, understand your risk tolerance and find the right investments. See financial advice for more information.

Invest through your super

If your goal is to save for retirement, contributing more to super is generally the best way to do this. See super investment options for more detail.