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Biggest investment craze in US history making waves Down Under: What is it?

David Taylor
Contributing Editor
This investment is no-frills, and low cost, and more and more people are being drawn to it. (Source: Getty)

You’ve heard it all before… I know. Interest rates are so low you know you’ll never grow your money in a bank account.

What about property, especially for younger Australians? Are you kidding? There’s no chance.

What about shares? If you’ve got a few hundred dollars lying around each month, sure, but having the discipline to inject it into the share market is another matter.

Let’s face it, if investing and building wealth was easy well, I wouldn’t have a job. It’s not easy.

Putting the obvious investment obstacles to one side for a moment, I want to give you heads-up on a growing investment trend. 

At the very least it might open your eyes up to some alternative investment ideas.

Introducing: ‘passive investments’. Please stay with me on this one. You won’t regret it, or at least I don’t think you will.

Really simply, they’re investments or financial products where the money manager simply tracks the market. There’s little, if any, day to day management of your money – which is why it’s low cost.

Investment experts say years of 'cowboy' behaviour by money managers, as exposed by the banking royal commission, has lead to a growing number of Australians switching to these relatively 'safe' places to invest, or to build their super.

InvestSMART's chief market strategist, Evan Lucas, says in the US there's now a record amount of money going into these types of no frills low cost investments.

And he says, in Australia, investors are still shell-shocked by the revelations which came out of the banking royal commission – and the antics of cowboy fund managers – are also increasingly choosing these straight-forward investments.

Zuper Superannuation is trying to take advantage of this trend.

It’s a relative newcomer in the competitive super industry. But it's muscling its way into the multi-trillion dollar investment arena by offering investors access to these financial products which promise only modest returns, but at the lowest possible cost.

Zuper's trying to take advantage of a growing number of disillusioned working Australians who have lost superannuation at the hands of over-zealous fund managers taking too many risks.

And why not? If you’re working you’ll likely have super, and the last thing you want to do is have your hard-fought cash go to management fees – especially is those management fees are going to a manager who’s been reckless with your money.

As always though, there is a bit of a catch.

Passive investment: The risks

Seasoned pros warn even passive investments come with risks.

Matt Sherwood heads up investment strategy at Perpetuals, one of Australia's oldest fund managers.

Mr Sherwood cautions both young investors and superannuates against thinking that passive investments as an easy way to make money – even modest amounts.

The reason: during a major financial downturn “active” money managers adjust a portfolio to try and ride the market. Think of a sailor at the helm of a yacht adjusting the wheel as the waves crash over the boat.

A passive fund manager just suffers the hit.

So, if you’re still reading, firstly, well done – not an easy topic, but secondly, I want to offer up an investment strategy (even if you really don’t have much money to play with).

Watch the market. If there’s a major downturn (which is becoming more and more likely), talk to someone about investing in a passive fund once the market reaches a floor (low point).

By getting into a passive fund at “the bottom” you’ll eliminate much of the risk of this type of investment. And you’ll effectively be building wealth, or your super, at the lowest possible cost.

I also want to encourage readers to look into different types of investments more generally. It doesn’t matter if you don’t have much by way of savings. Honestly, the more you look into investing, and the more educated you become, the more the world of finance opens up to you.

It’s just being smart.


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