Life sucks for an aspiring property owner right now.
You probably already know that the average price of a house in Australia ($656,800) is several (eight) times that of the average full-time yearly income ($78,832). You’ve probably already heard that in the past five years alone, wages have grown significantly slower (13 per cent) than house prices (41 per cent), especially if that house is in Sydney (70 per cent).
It’s enough to make you want to drown your sorrows in the most expensive smashed avo and latte combo available!
But honestly – enough, already. If you’re as bored as I am of this never-ending stream of bad news, it might be nice to know that there are many other options. Property is but one asset class, and there are many other things you can do with your money in 2017 instead.
Below are five better places to put your money as a young Australian in 2017.
1) Financial markets
Once upon a time, financial markets were for high-net-worth individuals with an advanced understanding of financial markets, or access to specialist advice. But with the rise of fintech and robo-advice, entry barriers are disappearing rapidly.
Apps such as Acorns or Stockspot allow users to invest small amounts of cash at very low cost – just a few dollars a month in some cases. This cash is then invested into diversified portfolios of exchange-traded funds (ETFs) on your behalf, using pre-determined mathematical rules and algorithms.
This means no expensive financial experts, or meticulously following the markets yourself. Estimated returns may reach as high as 10 per cent, according to some commentators, though of course there are no guarantees.
2) Marketplace investing
Another investment opportunity emerging with the rise of fintech is peer-to-peer (P2P) or marketplace lending. In P2P, investors are connected directly to borrowers via an online platform. This is said to give borrowers a better rate and investors a greater return, by cutting out the banking middle man.
Becoming a P2P investor is extremely simple. You input a few details into an online form, such as your preferred credit grade, loan term, and maximum amount you wish to invest in any one loan. The algorithm then does the rest on your behalf, and some lenders claim returns as high as 12 per cent per annum.
Each marketplace differs according to its degree of diversification, fractionalisation, and risk within its model, however, so it pays to do your homework.
Without money tied up in mortgages, many of the younger generation are trying their luck as entrepreneurs.
But why start a business, when you can invest in one, and earn money from the hard work of someone else?
Angel investors contribute funds towards promising early-stage start-ups, in return for equity in the company. You can invest as little as a few thousand dollars, especially if you team up as a syndicate of investors, and research shows that average returns are 2.5 times the capital invested on company exits (sales or IPOs).
First-time or time-poor angel investors might consider joining an angel investment organisation such as Sydney Angels. This way, for a yearly membership fee, you can watch the process several times before trying it out, and gain access to an established deal flow pipeline, the expertise of other members, and a sidecar fund that co-invests alongside you.
Superannuation may be the last thing on your mind if you are under 55 years. We get it.
But chances are, if you’re young and don’t own property, it may actually be the largest asset you hold. And according to Albert Einstein, the backbone of super – compound interest – is “the most powerful force in the universe”. But never is it more powerful than in your earlier years.
With a 5 per cent interest rate, $10 invested at age 20 will turn into $90 by the time you retire at 65 years. Compare this to investing it at age 35, which will turn it into just $43, or at age 55 which will turn it into a dismal $16.
Because more and more super funds are releasing apps that allow you to track your investment, growing your super doesn’t have to be hands-off or boring any more.
5) Property – but just not yet
What goes up, must inevitably come down. And past cyclical patterns in house prices show that the Australian property market is no different – though “coming down” may just mean stagnating for a while.
There are plenty of property pundits pointing to signs that the market will slow and become more affordable over the next decade. According to the experts, supply is increasing in major cities, interest rates are expected to rise shortly, and rents are getting cheaper.
It sure may not feel this way now – but it’s simply a matter of timing.
So use your money now in a way that works for you, and revisit that one-bedder in Bondi at a future point that simply makes more sense.
Clayton Howes is the CEO of MoneyMe, a consumer lending fintech to Millennial Australians.