Investment accounts are popular and a quick way to diversify your portfolio is to invest in stocks and bonds.
But how do you choose the right fund for you?
The Australian Securities and Investments Commission (ASIC) is asking investors to think about investment opportunities and risk.
“The commission has identified a number of potential investment strategies that may be beneficial to a small investor and have recommended they be considered,” the ASIC said in a statement.
“The ACCC’s recommendations focus on what’s called a small investment account, where the amount invested is less than your investment.
The small investment accounts allow investors to use the funds for small purchases, such as buying groceries, or investing in short-term investments, such to bonds or stocks.”
Read moreThe commission says investing in small investments is a “great way to manage your retirement savings”, but that there are “several caveats”.
For instance, the commission says small investments can be a better way to save money than the traditional IRA or Roth IRA.
“There are some situations where the use of a small-scale investment is better for a number the reasons set out in the guidelines,” ASIC’s advice said.
“For instance in a small business, there may be greater need to diversifying investments in order to remain competitive with competitors.”
The ACCI’s guidelines state small investments should be used for:• “potential short-to-medium term purchases” such as groceries, food and medicine• “limited short- to medium-term purchases” including food, clothing and fuel• “diversifying investments” that can include short- and long-term bonds, stocks and other asset classesThe ACCP’s guidelines are the same, but the ASICS says small funds should be kept “on an even keel”.
“The fund manager should keep the fund under the control of a third party and should only invest the money in the name of the fund manager,” the ACCP said in its advice.
Read more”The manager should also keep all the fund details and invest them with a third-party trust.”
What you need to know about investing in a fundThe fund managers of many of Australia’s largest mutual funds are recommending that investors invest in small-sized investment funds (SIFs).
The ACCCI’s advice says you should not invest more than $5,000 a year in a SIF.
“Small-sized investments can offer significant tax savings and other advantages, including avoiding the high tax consequences of investment income,” the advice said, adding that a SIFT can reduce your taxable income by up to $10,000, which is more than the average savings that many Australians make in a year.
The Australian Financial Services Association’s advice for investors is the same.
“If you invest $5000 a week, you should invest $15,000 of your savings in a portfolio,” the AFSA said.
The AFSB advises that investing in SIFs can be “an effective way of managing your retirement and saving for retirement”.
Read moreIf you have a small amount invested in a mutual fund, you can also save more in a lump sum.
The amount you put in each year should be a minimum of $1,000 and a maximum of $25,000.
The ACC and ASIC are recommending small investors take out a maximum $25 million of lump sum savings from an SIF each year.
“While it is likely that a lot of people would invest $25m, it may be better to hold onto the lump sum if you can,” the ACAC said.
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