Investments in a class of their own

Asset class

Type and purpose

Characteristics

Risk

Return

Cash
(bank accounts and term deposits, cash management trusts)

Defensive asset aimed at generating income.

• Provides a more stable, lower-risk income in the form of regular interest payments.

• Normally used for short-term investment and investors with a low tolerance to risk.

• Can be used as a building-block in a longer-term investment strategy—for example, can enable an investment in shares once savings reach a particular balance.

In addition to being an investment asset class, cash forms a key component of day-to-day budgeting.

Low

Low

Fixed interest
(government and corporate bonds, mortgages and hybrid securities)

Defensive asset often used to generate income.

• Capital value can be more volatile than cash, but is still considered relatively stable.

• Income is usually paid in the form of regular interest payments or coupons.

• The investment is locked-in for a pre-determined period of time.

Low to moderate

Low to moderate

Property
(directly held residential, industrial and commercial property and real estate investment trusts commonly called REITs)

Growth asset used to generate capital growth and income.

• Relatively higher risk than fixed interest but generally less than shares.

• Directly held property:

• Must be sold for any increase in capital value to be realised—this can involve significant costs in time and money.

• Has the potential to generate income when the property is leased and rent is received.

• REIT investments:

• Offer the opportunity to invest—in directly held real estate or real estate mortgages—via stocks on a stock exchange.

• Are typically more liquid (can be converted into cash more quickly with minimal impact on the price received) than directly held property.

Moderate to high

Moderate to high

Shares—also called equities
(holdings in Australian and international companies)

Growth asset for generating capital growth and income

• Considered one of the most volatile asset classes. But tend to achieve higher investment returns over long time frames.

• Provide part-ownership and the opportunity to share in the profits and future growth of a company.

• Often provide a combination of capital growth—or capital loss—due to the performance and changes within a company, and income through dividend payments or franking credits.

  With international shares, in addition to the factors already mentioned, the valuation of the currency of the country in which the company operates can affect the shares’ value—positively or negatively.

High

High