Exchange traded funds (ETFs)

An ETF is a type of managed fund that can be bought and sold on an exchange, such as the Australian Stock Exchange (ASX), and which tracks a particular asset or market index. ETFs are usually ‘passive’ investment options as the majority of these investment products aim to track an index, and generally don’t try to outperform it. This means the value of your investment in an ETF will go up and down in line with the index it is tracking.

ETFs tend to be easy to buy and sell and have lower fees than some other types of investment products. They form part of a larger class of investment products called exchange traded products, or ETPs, which can be bought and sold on an exchange.

Investment bonds

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Like a managed fund, if you decide to put money into an investment or growth bond (also known as an insurance bond), your money will generally be pooled with money from other investors, with an investment manager overseeing the funds and making the day-to-day investment decisions. This makes for a hands-off approach for the investor, which can be helpful if you’re too busy to oversee your investments, or prefer to have a knowledgeable manager making the decisions.

If you hold onto an investment bond for at least 10 years, you won’t have to pay additional tax on any profits that you’ve made when you eventually sell (or redeem) your investment. That’s because such investment bonds are seen as ‘tax-paid’ investments, where earnings are taxed within the bond along the way at 30%. If you’re paying more than 30% in income tax, an investment bond may be a tax-effective structure to help you invest.

Annuities

A popular option for retirement, annuities provide a guaranteed income regardless of what’s happening in financial markets 3 . These can be in the form of a series of regular payments either over a set number of years (fixed-term), or for the remainder of your life (lifetime annuity). The payments you receive will depend on things like the amount you put in and actuarial calculations, which estimate future outcomes by looking at economic and demographic trends.

You can purchase an annuity through your super or with ordinary savings. It’s important to note though, that if you’re using your super money for the purchase, you won’t be able to access the funds until you reach your preservation age and retire.

Listed investment companies (LICs)

LICs are a type of investment vehicle which are incorporated as companies and listed on a stock exchange. Most LICs operate in a similar way to a managed fund with an internal or external manager responsible for selecting and managing the company’s investments on your behalf to provide diversity. LICs commonly invest in shares in other companies.

It’s important to note that LICs are ‘closed-ended’ investments, which means there’s a set amount of shares available that does not change. Shareholders can come and go, but the amount of capital in the LIC doesn’t change as investors change. This means the investment manager can focus on managing the investment, rather than trying to raise funds if a shareholder exits the investment or making additional investments if more investors come on board.

Real estate investment trusts (REITs)

A REIT is a type of property fund listed on a public market, such as the ASX, in which investors can purchase units. Similar to a managed fund, your money in the fund is then pooled and invested in a range of property assets, which may include commercial, retail, industrial, or other property sectors.