The investor makes money grow not only for his personal security and happiness. He becomes a participant in the economic activity of the country and a promoter of common welfare. Drops of individual savings cumulatively form the ocean of funds that keep the economy moving.
In the Parable of the Talents, Jesus illustrated how a foolish man buried his silver coin in a hole in the earth to protect it from thieves and covetous eyes. He did not use the money for his needs nor did he make it grow. The wise man invested it productively and made it yield a hundred times and earned his master’s praise and reward.
The Piggy Bank, invented in Western Europe in the14th -16th centuries has been a symbol of household savings. The money put into the pig symbolized the ‘leftovers’ and once the ‘pig’ was full, it was fit to be harvested!
The saving habit leads to spending and saving rightly and creatively, liberating the individual from anxieties and care.
Impact of Savings
There is now a school of thought that says that the welfare state hinders development of the individual. It collects taxes and gives it back in the form of welfare. But quite a chunk of the resources is lost in administrative expenditure and the beneficiary is none too happy with the quality of the services provided.
Personally funded investment schemes empower the individual, enhance his self-worth and invest him with a sense of autonomy.
Planning Investment
Plainly stated, investment rates mean the rates of return on one’s investment. With the emergence of the banking industry and managed funds, investment functions have been taken over by professional agencies.
Investment has become a specialized activity and a variety of avenues are on the investment scene. One needs some basic knowledge for making the right decisions. The individual has to keep in view his –
· Present financial situation
· Tax planning
· Incremental income in the near future
· Requirements of liquid cash
· Needs in the short/ medium term, (house mortgage, education, foreign travel)
· Long term needs post- retirement, and
· Safety and security of capital and optimal rate of returns
Australia’s Investment Climate
The investment climate in Australia is reckoned to be very congenial.
· Political and economic stability, an open society, low unemployment rate and low rate of inflation (less than 3% per annum) and the performance of industry and commerce have created a climate of confidence.
· Australia received $8bn as Foreign Direct investment in 2003, World Investment Report 2004 released by the United Nations Conference on Trade and Development.
· The International Monetary Fund (November 2003) commended the country’s economy for its “strong performance, with six years of budget surpluses, falling public debt, low inflation, high and rising productivity, and a long period of uninterrupted growth that has underpinned a dynamic job market”.
· Australia has a rich natural resource base and strong agricultural and resource industries. Also its biotech, information technology, renewable energy and services sectors have been contributing to nearly 80% of gross domestic product.
· The country boasts of a highly skilled and multi-cultural workforce, superior research and development skills and infrastructure, sophisticated information and technology systems.
· The government encourages FDI and fosters a transparent and pro-investment regulatory environment.
Avenues for Investors
When Adam delved and Eve span, was there any talk of investment? Perhaps they stored grains for the rainy day. Modern life has totally changed our goals and aspirations. We have to save and invest part of our earnings to provide for our needs throughout our lives.
What is the outlook for the small investor in Australia? Depending on short-term liquidity and long-term security, a variety of investment avenues present themselves.
Deposits “At Call”
The “At Call” deposit lends itself to withdrawal at short notice of 24 hours and carries lower interest rate than long-term deposits.
Fixed-Term Investment Options
Fixed-term investments provide a fixed rate of interest for a specified period of time, and generally pay a higher rate of interest than at-call investments. These products generally offer a range of interest payment options including compound interest and interest payments that provide a regular income stream.
Debentures
A loan secured on the assets of the company on which a fixed rate of interest is paid before any dividend is paid to the shareholders.
Bonds
A certificate of intention to pay the holder a specified sum on a specified date. Government bonds are very safe as they are guaranteed by the Reserve Bank of Australia. They are often referred to as gilt-edged securities which the investor feels absolutely safe with.
Shares
Shares issued by a company whose value is not fixed and is likely to fluctuate according to the company’s performance or as a result of speculation by buyers and sellers, also called stocks. Stockbrokers are the intermediaries who buy or sell on a commission basis. One might make a kill here on a good day or get wiped out. It is better for the cautious investor to keep out of this and allow fund managers to do the investment for them on safe parameters of performance. However, purchase of shares at par on new issues could be very profitable over the long term when the share value appreciates significantly.
Managed Funds
Professional managers of mutual funds invest your money in diverse range of assets including equity (shares), debts (government bonds/securities,) and real estate, and pay you the dividend on the basis of the return on the investment. Information on the Star rating of the funds (one to five) and their current prices are accessible to the public through Internet and newspapers.
· Equity funds pay well but are subject to fluctuations and the risk element is more.
· Debt funds are secure as they are invested in bonds and securities.
· Balanced funds invest in both equity and debt to even out the risks.
· Monthly Income Funds pay less while Growth Funds return a higher rate over the long term by reinvesting the earnings.
· The wise investor should plan for stability of capital along with the return
The Watchdog for Managed Funds
The Australian Securities and Investments Commission (ASIC) plays a watchdog role over operations of managed funds and warns the investors about fly-by-night operators offering unrealistic ‘pie-in-the sky’ returns. The ASIC says the investor should first verify if the scheme has been registered with the ASIC. The investor would be well advised to access their website for do’s and don’ts on investments in managed funds and also directly in shares.
Pension /Superannuation Funds
Referred to as “Super”, this is the financial anchor for one’s future. While you are employed, you contribute towards your pension with a matching contribution from your employer. All this together with the lump sum payment given by the employer at the time of retirement forms the corpus which yields the pension. This corpus is reinvested
by the operators of pension funds in both public and private sectors and the income used to meet their commitments. You can opt for lump sum payment or pension or a combination of both. This is a mode of tax effective savings with the potential to diversify.
The Prudent Investor
The prudent investor would appreciate these home truths about investments –
· Investment rates relate to the degree of risk involved.
· Low returns – stable investments.
· High returns – more risky investments.
· Balanced returns – will be a mix of the above two.
· Good to mix investment profile to reduce risks.
· Financial planning needs to be done consulting investment advisers
In his famous play Hamlet, Shakespeare said very rightly “Neither a borrower nor a lender be.” Had he been alive today, he would have added, “but be a wise investor!”