Investing is a daunting task. There are multiple types of investment one can consider, but often an investor can only choose a single investment class due to capital constraints.
The most common investment classes (in no particular order) are: real estate, shares (sometimes referred to as equities), bonds and fixed income products. Each class possesses unique advantages and disadvantages, with some classes being unreasonable or unattainable for investment purposes for the majority of the population (such as property).
Shares are helping to level the playing field by providing an avenue to invest in these 'out of reach' classes. Here's a closer look at how.
Why shares are almost always a good idea
There are so many positives to investing in shares through an exchange such as the S&P/ASX 200 (INDEXASX: XJO).
Firstly, the standardised process makes buying and selling a dream. No financial advisers or real estate agents needed.
Secondly, shares are always more liquid than direct investment – it's much easier to sell shares than your investment property or managed funds if you need to free up your cash.
Lastly, and possibly my favourite aspect of the share market, is how diverse the offering of products within the market is. There is more than just company stock on the ASX – there are also several types of products that are designed to allow investors to gain exposure any corner of the market. Let's look at 2 of the major asset classes listed above, and how you could invest in them through shares.
Bonds
If you're a relatively risk-averse person, you could consider investing in bonds. Government bonds have zero chance of defaulting, meaning your money is guaranteed to be returned, plus any interest owed.
Sounds great, right? But this certainty factor does come at a steep opportunity cost. Bloomberg quotes a yield (return) of 1.31% for 10-year bonds. In other words, if you bought $1,000 worth of these bonds, after 10 years you would expect a return in dollars of around $140. So, bonds are safe, but the safety costs you.
Bonds are also complicated to purchase – often you need to purchase them through a financial adviser because the process is so complex. To cut out all the complication, you could buy shares in the SPDR S&P/ASX Australian Bond Fund (ASX: BOND). This ETF tracks Australian fixed income assets without the hassle of dealing with the complicated bond buying and selling process.
Real estate
Real estate is the most classic form of investment and perhaps the most understood by the general public. The premise is simple: buy a property, hold, generate rental income, sell for a capital gain at a later date. A sound business model that unfortunately requires a great deal of capital to get started. This is the biggest problem with property – you can't even consider dabbling in real estate for investment purposes without at least 20% down payment. If you're looking at a $500,000 home, that equates to a $100,000 deposit. Hefty.
So how can shares help? One word – A-REITs. Actually, five words: Australian real estate investment trusts. A-REITs are ETF-like products that investors can purchase on the ASX. The best part of this avenue is that your entry point isn't stupendously high, because the ASX allows $500 minimum parcel sizes. DEXUS Property Group (ASX: DXS) is an example of a high-quality real estate investment company that has a portfolio of property valued at $31 billion.
Foolish takeaway
There are more than just company equities on the ASX – there are also a number of products that allow investors to gain exposure to whatever their heart desires.
Classical means of investment are being challenged by products such as BOND and DEXUS shares. These options benefit retail investors greatly, by providing a reduced minimum investment and higher liquidity through exchange-listed products.
Bottom line: if you want to invest in something but feel like it is too expensive or too complicated, investigate whether you can do it through shares instead!
