By regularly making consistent purchases in an investment, you can invest at various price points as the market goes up and down. When prices are low your investment amount buys you more of that investment, and when prices are higher, your investment amount buys you less of that investment.
Buy and hold
This strategy involves buying investments you believe will grow significantly in value over time.
How it works:
- Investors may buy an asset they believe is undervalued but has the potential for long term growth
- They can hold the asset and wait for it to appreciate
For example, investors who purchased 1,000 shares in Apple Inc. at $US 1 in the year 2000, now trades at $US 200 in 2025, an incredible return of $US 199,000 on top of the initial investment.
We can see that this strategy requires:
- Detailed research and analysis in identifying companies with growth potential
- Patience and belief to stick with the strategy regardless of short-term market volatility
As part of any good overall investment strategy, this should always be employed as a part of a diversified portfolio to ensure sufficient protection against risk.
Investing in an Index fund
What is an index?
An index tracks how a specific group of shares or market segment performs. For example:
- The ASX / S&P 200 tracks Australia’s 200 largest listed companies by market capitalisation
- This index represents a significant portion of the market
- This is used as an indicator to show how the Australian share market is performing.
Similarly, there are other indices such as the Dow Jones, All Ordinaries and S&P500.
What is an index fund?
An index fund is effectively an investment vehicle (ETF or a managed fund) that invests in the investments represented by the Index. For example, an ETF or managed fund may choose to invest in all 200 companies represented by the ASX / S&P 200.
What are some benefits and considerations of index funds?
Low-cost diversification. An Index fund generally doesn’t invest in specific sectors or types of companies, and because it is a passively managed investment (this means requires very little management from an investment expert) it tends to generally have lower costs and fees.
Index funds provide little or no control over the underlying investments and do not offer the investor with choice of investment. Investments will move in line with the market and offers the investor with limited opportunity to make investment decisions to take advantage of (or counteract) any market events.
Passive income investing
Passive income refers to earnings that require little to no ongoing effort to maintain. Common sources of passive income include dividend-paying shares, distributions from managed funds or ETFs, and interest income from bonds or savings products.
Dividends from shares
Dividends are payments made by companies to shareholders, typically from profits. These payments can offer a relatively steady income stream for shareholders who own dividend-paying shares.
- Dividends are often paid quarterly or semi-annually.
- Some investors choose to reinvest dividends through dividend reinvestment plans (DRPs) to compound returns.
- Not all companies pay dividends, many growing businesses may reinvest profits back into operations instead.
Distributions from managed funds and ETFs
Managed funds and exchange-traded funds (ETFs) may also produce income in the form of distributions. These can include:
- Interest earned from fixed-income assets (i.e. bonds)
- Dividends received from equities held in the fund
- Capital gains from asset sales within the fund
Distributions vary based on the type of fund and its investment strategy. For example:
- Income-focused funds may aim for regular, stable payouts.
- Index-tracking ETFs often pass through income based on the underlying portfolio’s performance.
ETFs can be traded on the stock exchange like shares, while managed funds are typically accessed directly through fund managers or investment platforms.
Interest from bonds and savings
Bonds are debt instruments issued by governments, corporations, or other entities. When you purchase a bond, you're essentially lending money in return for regular interest payments (known as a coupon) and the return of principal (original investment amount) at maturity.
- Government bonds are often considered lower-risk, with lower yields.
- Corporate bonds typically offer higher interest but may carry higher risk.
Other sources of interest income may include:
- High-interest savings accounts
- Term deposits
- Cash management accounts
These forms of income generally offer greater predictability, though returns may be lower than other investment types.
Creating a stream of passive income through dividends, distributions, or interest may be a long-term goal for some investors. These income sources can complement current income earnings or serve as future income payments (i.e. retirement). It's important to research thoroughly and assess your own needs.
