How to invest $100,000?

Let’s imagine for a moment that you’ve just come into $100,000…

Well done! I’m sure you deserved it.  Ok, so you’ve decided you’re not going to blow it – you want to invest your windfall to generate extra income.

So where is the best place to invest $100,000 to maximise your income?

Investment Income Yield (pa) Income (pa)
Term Deposit 3.00% $3,000
High interest bank account 3.35% $3,350
Rental Property1 6.00% $6,000
Commonwealth Bank Shares2 7.98% $7,984
Telstra Shares2 7.80% $7,797
BHP Shares2 7.79% $7,789
MLC Horizon 4 – Balanced Portfolio3 6.80% $6,796

Often investors focus too much on the value of their investment – whether it’s risen, fallen, or broken even; and too little attention is paid to the income that their investment generates over time.

Growth investments grow, not because of some random toss of the coin, but because of their underlying income growth. If the rent from an investment property steadily rises over time, it’s a sure bet that the value of that property will also rise. The same principal goes for share investments.

But what about money in the bank? As we all know, if you spend the interest it earns, the account balance will never change. And the interest earned will fluctuate in line with official interest rates.

Let’s now imagine that you received your $100,000 back in 1980…

With the benefit of hindsight, we can see how you would have done if you had invested it into a term deposit, or into Australian shares.

In the table below, we can see that the term deposit income (orange bars) started quite high, but as interest rates fell through the 90’s and beyond, the income has dropped and remained low.

However the share dividend income (maroon bars) has steadily improved, and is now delivering annual income more than ten times greater than term deposits.

And the take-home message…

Clearly share and property markets will fluctuate – but if you’re looking for a growing income stream, and you have time on your hands, then it’s important to consider growth investments in the mix.

$100K Investment1.Estimated net rent on a $100,000 1 bedroom flat in regional South Australia

2. Based on 2015/16 dividends including franking credits

3. 2015/16 distribution

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax and/or legal advice prior to acting on this information. Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.

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