5 Alternative Investments To Consider With Interest Rates At Record Lows

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Australians have been turning away from traditional saving vehicles like deposits and paying down debt with the Reserve Bank recently driving interest rates to historic lows.

As the RBA noted in its Financial Stability Review this week, cash isn’t as popular as it used to be. And now commentators are warning that real estate prices are racing up faster than they should.

There are plenty of alternative places for you to park your money, assuming you have time enough to research them thoroughly and the risk appetite to make them worthwhile.

Equities are an obvious choice, and one that has become more popular since about 2011, according to a recent consumer sentiment survey by Westpac and the Melbourne Institute.

Via ASIC’s MoneySmart website, here are a few others:

  1. Foreign exchange

    Forex traders generally try to profit from speculating on the value of one currency compared to another.

    ASIC says you’ll need “good knowledge of foreign exchange, leverage, volatility and the conditions of each country whose currency you are trading”, and an awareness of factors like politics, economics and market confidence.

    Many forex traders trade on margin, where their funds only cover a percentage of a trade’s total value and they essentially borrow the rest from their forex providers.

    That means you can lose more than what you initially put into the trade.

    Japanese housewives are an influential group of forex traders, with reports suggesting that they number around 30 million and tend to favour the Aussie-Yen carry trade.

  2. Exchange traded funds

    Exchange traded funds (ETFs), like managed funds, hold a combination of assets like stocks, commodities or bonds. They generally aim to replicate returns of an index or another underlying asset at lower cost.

    ETFs trade like shares on the ASX and ASX Quoted Assets (AQUA) markets, so they tend to be easier to get in and out of than managed funds.

    ASIC warns that there are several new exchange traded products available to retail investors and their risks and complexities vary. Would-be investors are advised to “read the disclosure documents for further information about the specific features of each product, and consider getting professional financial advice”.

  3. Options, futures and warrants

    Options, futures and warrants are an alternative way of trading assets like shares, currencies, indices and commodities.

    While an investor may, for example, buy or sell something on the ASX at the current price, options and futures allow him or her to buy or sell the share on a specific date in the future, at a specific price.

    With an option, a trader pays some amount for the right to buy a share at a set price on or before a specific expiry date. An options contract differs from a futures contract in that the buyer of an option doesn’t actually need to go through with the deal – they just forfeit the cost of the option if they don’t.

    That means that instead of buying a share now and holding it for say, a year, you can a premium for the right to buy it at a certain price anytime in say, the next two months. You’re still betting that the price will rise, but if it falls instead you can decide to forfeit the cost of the option and walk away.

    ASX warrants are issued by only a handful of investment banks. Only the issuer may make a market on a warrant.

    There are several types of warrants. MoneySmart lists two: ordinary warrants, where like options, you can choose to forfeit the purchase price and walk away from a deal; and installment warrants, where you essentially take a loan from the warrant issuer to buy shares at a specific price and receive dividends on them.

  4. Agribusiness schemes

    Agribusiness schemes are generally long-term managed investment schemes where money goes into livestock, farming, horticultural or forestry projects and there are no early exit options.

    ASIC warns that although there are tax benefits to investing in agribusiness schemes, many things can go wrong including crops failing, the scheme manager collapsing, and market fluctuations.

    It suggests that agribusiness schemes may suit wealthy, high-income earners who benefit from tax concessions, can afford to meet ongoing costs and can wear the costs of a loss.

  5. Carbon credits

    Carbon credits are tradable units that relate to activities like tree planting or capturing methane from landfill, and can be used by businesses or individuals to offset their carbon emissions.

    Carbon trading schemes may be regulated or unregulated; the latter group involves sellers that aren’t licensed by ASIC, while the former group tends to trade in Australian Government or internationally issued emissions units.

    ASIC warns that the carbon credit market is new in Australia, and investors should be wary of scams.

There’s more on ASIC’s MoneySmart.

Now read: If All The Housing Bubble Headlines Have You Worried, Here’s What You Need To Know

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