Investor Education Centre > Useful Tips & Knowledge > Key Considerations when Choosing an Investment Term
Key Considerations when Choosing an Investment Term
Term-based investment products such as term deposits and income funds typically provide investors with options ranging from 30 days to 10 years depending on how they are structured. Choosing which term to invest for however can be challenging without a crystal ball to gaze into.
The key things you should consider when choosing an investment include:
1. When will you next need the money
You should factor in any potential upcoming capital outlays that would require you to draw upon your investment funds. If you can’t foresee a need for the money, perhaps consider a longer term as this can often mean a higher rate of return.
2. Early withdrawal/redemption fees
Should you need to withdraw your money early you should be aware of any potential fees. Unexpected circumstances can pop up from time-to-time and it’s important to know whether a) you can redeem early, b) how much notice you need to provide, and c) what early exit fees may apply.
3. What rate you need to achieve
If you are reliant on your investment for an income stream to live off or fund other activities you may like to consider what rate you need to achieve, as different investment products offer different rates. For example, term deposits offer rates of 2-3%, income funds and mortgage funds can be as high as 12% with a different risk profile to that of the banks.
4. What are interest rates likely to do?
A change in interest rates can have a significant impact on your cash flow. It can result in outcomes including:
Lower interest earned on savings
Higher mortgage repayments
Higher levels of inflation
All of these can impact how much money you are left with each month.
5. Effects of inflation
Many investors overlook a basic principle when managing their money – inflation erodes returns. The real return you make on your money should factor in inflation as the cost of living is steadily increasing in Australia.
6. How you will be taxed
Chances are that income earned from your investment will be taxed. You should be mindful of how much the Australian Taxation Office is likely to expect you to pay and factor this in when calculating your real rate of return.
7. Will your interest rate decrease if you re-invest?
An often overlooked disadvantage of a short investment term is that if you choose to renew at the end of your term, your investment will be rolled over at a new interest rate. If rates have gone down, or if you were on a promotional rate, the income stream from your investment will decrease which can be painful.
IPO Wealth provides term-based investment options of 3, 6, 12, 24, 36 and 60 months with the option of monthly income distributions. Our longer terms provide the opportunity to target higher returns though our short term options are still very competitive. If you choose to automatically roll over your investment for the same period again, we continue paying you the same target return. Our investors love this feature, particularly those that are used to earning lower returns elsewhere.
This website contains general information only and is not intended to provide any person with financial advice. It does not take into account any person's (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making investments.