Best performing investment types by expected time to return

The way you structure your investment portfolio will depend on your financial goals, investment time frame and risk tolerance.

The amount of time you have to invest, and what returns are reasonable to expect within your investment time frame, should be a key consideration in formulating your strategy.

In general, if you only have a short time frame, lower-risk investments could be a safer option as they’re less likely to fluctuate in value. 

That means when you withdraw your money, you’re unlikely to be affected by any short-term market volatility that may coincide with your investing time frame, also known as your investment horizon.

If you have a longer investment horizon, you might consider taking advantage of higher growth investment types.

They may offer higher average annual returns but are likely to fluctuate along the way or involve higher up-front costs, making them a better option over a longer investment period. 

A longer investing time frame gives you the ability to ride out short-term market movements, potentially allowing your investment the time it needs to gain in value and provide the returns you may be expecting.

What do we mean when we talk about short-term and long-term investments? While this may be interpreted differently by individual investors, generally:

• short-term investments refer to investment periods of two years or less.  

• medium-term refers to investments of around three to six years.

• long-term investments are those that are held for seven years or longer.  

Investment types tend to be categorised as short-term or long-term investments. Medium-term investments may comprise a diversified mix of investment types, for example: long fixed-term cash investments of five years or so alongside managed funds with a lower weighting to shares and a higher weighting to fixed interest investments. The exact time frame you choose will depend on your personal preferences and objectives. Consider talking to a financial adviser for more information.    

Always research the investment type you are considering and read the Product Disclosure Statement of any investment product to familiarise yourself with the key features, risks, benefits and recommended investment time frame.  

To give you a view of how investment types have been performing over time, below are the most common investment types and returns, ranked by investment time frame, showing the returns over the past financial year, past three years, five years and 10 years*.

In any given year, returns may fluctuate due to market forces but tend to average out over time.

What is it?

• Bank accounts
• High interest savings accounts
• Term deposits 

How does it work?

You invest in currency, usually by putting money into bank accounts, term deposits or similar.

Why invest in it?

• Can offer steady, predictable income.

• It’s low risk. Balances of up to $250,000 held by individuals in bank, building society or credit union accounts are guaranteed by the Federal Government.

• It’s usually very liquid, which means you can withdraw your money quickly if you need to. There may be a fee if you withdraw your money early from a term deposit.

Disadvantages:

• Your money won’t usually generate capital growth.

Risk profile: 

• Very low

Returns over the past decade*:  

• 1 year: 4.4%

• 3 years: 2.4%

• 5 years: 1.6%

• 10 years: 1.9% 

What is it?

• Government bonds

• Corporate bonds

• Debentures 

• Capital notes

How does it work?

These are like a loan from you to the bond or debenture issuer, with a set rate of interest due to be paid to you at set intervals over a fixed period. Payments of a fixed income security are known in advance and remain fixed throughout the term. At maturity, investors are often repaid the principal amount they invested.

Why invest in it? 

• Steady, predictable income 

• Helps diversify a portfolio and lower risk

Disadvantages 

• There is some risk of losing your investment, for example, if the company issuing a bond fails. 

Risk profile: 

• Low

Returns over the past decade*: 

Australian bonds: 

• 1 year: 3.7%

• 3 years: -2.1%

• 5 years: -0.6%

• 10 years: 2.2% 

Global bonds:

• 1 year: 2.7%

• 3 years: -2.7%

• 5 years: -0.7% 

• 10 years: 1.9% 

What is it?

• Residential property

• Commercial property

How does it work?

You either buy a property or buy a stake in one or more properties through a property security owned by a company or trust. By pooling your money with other investors to form a fund or trust, you can invest in several different properties or buy a portion of a building you may not have otherwise been able to afford. As well as houses and apartments, property includes factories, warehouses, office spaces, shops and shopping centres. Very different conditions and returns are likely to prevail, depending on the location of the property market. Property investments may be listed on a stock exchange or unlisted, which means they may not have an official regulated market for trading. 

Why invest in it?

• Rent offers a steady rate of income

• Property may offer a capital gain if you sell it for more than you paid for it

• It can also be a tax-effective investment.  

Disadvantages 

• Residential property may involve upfront costs that take time to recoup

• Includes ongoing maintenance costs

• May be less liquid, or able to be sold quickly.

Risk profile: 

• Medium to high

Returns over the past decade*: 

Global listed property

• 1 year: 3.6%

• 3 years: -4.9%

• 5 years: -1.2%

• 10 years: 3.1%

What is it?

• Shares allow you to own a part of a company, either in Australia or overseas. They can be bought directly, via an online trading platform, or through a professionally managed fund.

How does it work?

Shares are generally bought and sold on a public stock exchange. Investing through a professionally managed fund may enable individual investors to gain exposure to markets and combinations of companies they may not be able to purchase themselves.

Why invest in it?

• Shares may offer capital growth

• Some shares provide income in the form of dividends paid to investors

• They often outperform other types of investment over time.

Disadvantages 

• The value of shares will fluctuate, and there is also the risk of capital loss or no dividend being paid. 

Risk profile: 

• High

Returns over the past decade*: 

Australian shares

• 1 year: 11.9%

• 3 years: 6.1%

• 5 years: 7.2%

• 10 years: 8.0%

Global shares (Hedged)

• 1 year: 19.8%

• 3 years: 5.9%

• 5 years: 10.3%

• 10 years: 9.7%

Global shares (Unhedged)

• 1 year: 19.3%

• 3 years: 9.9%

• 5 years: 12.2%

• 10 years: 12.6%

What is it?

Infrastructure may include a broad range of investments in things like:

• Transportation, such as toll roads, rail and airports
• Utilities
• Renewable energy infrastructure
• Data centres

How does it work?

Listed infrastructure investments in a fund or trust are listed on a share market. Unlisted infrastructure investments can work in a similar way but are not listed on a public exchange. This means the fund or trust may not have an official, regulated marketplace for trading.

Why invest in it?

• May offer attractive, steady returns over the long term

• Returns may include income from the underlying assets, such as tolls, paid to investors of a fund or trust through regular distributions.

Disadvantages 

• May be less liquid, or able to be sold quickly.

• May take a long time to generate cash flows, and returns may rely on forecasted future use. 

Risk profile

• High

Returns over the past decade*: 

Global listed infrastructure:

• 1 year: 2.4%

• 3 years: 0.7%

• 5 years: 2.5%

• 10 years: 5.8%

For more information on different investment types, visit our website, or talk to a financial adviser.