Investments

First published April 2024, updated October 2026

By Peter Moussa, NAB Private Wealth

The types of investments selected and the weighting each asset class is given are important considerations when constructing an investment portfolio, as is a sound understanding of your risk appetite and how each investment fits into that framework.

Most people know options like an interest-bearing cash account or term deposit. While these offer a safe return on investment with no volatility on the initial funds invested, they generally offer a return that is close to the prevailing inflation rate, which means savings growth is low relative to increases in the cost of living.

This is because the cash rate is set by central banks based on current and expected changes in inflation, which indirectly impacts returns received on cash and other investments. This low rate of real return is why many investors turn to alternative assets to boost their returns.

Investors branching out typically keep enough aside in a cash account or term deposit for any short-term needs (less than 12 months). For anything longer, there are several options to consider, each with their own ideal time frames and depending on an investor’s expectation for return vs risk.

Low volatility assets such as floating rate notes may be used for funds needed in the shorter term, and higher volatility assets that offer the potential for the best long term returns such as shares could be considered for funds invested over longer timeframes.

Floating rate notes

Relatively low-volatility investments that provide a return based on a reference interest rate plus a fixed margin. The risk of capital loss depends on the issuer remaining solvent, which is why investors often favour issuers with strong credit ratings, such as major Australian banks. The margin above the benchmark rate can range from around 50 to 400 basis points, depending on the issuer and the seniority of the debt. For example, a floating rate note offering a margin of 200 basis points (2%) would pay investors the benchmark rate plus 2% per annum. Because interest payments adjust as benchmark rates change, floating rate notes can help reduce interest rate risk compared with fixed-rate bonds. Investors commonly use them for funds that may be needed within the next one to five years.

Fixed rate bonds

Also considered relatively low-volatility investments. However, in addition to credit risk, they carry interest rate risk. These investments pay a fixed rate of interest over a set term, typically between five and ten years. Peovided the issuer does not default, investors receive their original capital back when the bond matures. The value of the bond may fluctuate during its life as interest rates rise and fall.

This means that if the bond is held to maturity the investor will receive their initial investment back in full in addition to the interest earned from the bond. However, as we know sometimes investors need access to capital before the bond matures and, in this case, investors may buy or sell the bond before maturity, however, they are subject to market volatility which amongst other things, is determined by the likelihood of default of the issuer and changes to interest rates at the time.

Also, the interest rate component of the price creates both risks and opportunities, if interest rates move lower, the bond price moves up. This is because new bonds that are issued when rates move lower generally offer a lower yield, making older bond more attractive. The reverse is also true if interest rate move up, the bond price moves lower. These usually pay a return similar to floating bonds, but the key difference is that the coupon is fixed, meaning they are normally preferred if an investor feels that interest rates are likely to move lower over the coming years. Investors typically use these for funds needed in the next 5 to 10 years. As of October 2026, investment-grade bonds have recently offered yields in the range of around 5% to 7% per annum, depending on the issuer and market conditions.

Equities (stocks)

Considered to the be the most volatile asset class over the short term but can potentially offer a relatively higher return over the long term. Historically they have outperformed other assets including property. For funds that can be put aside for a longer time horizon, investors can consider equities as well as tools such as margin loans that allow investors to borrow and invest in equities just like many people do with property. This is because a longer time frame allows investors to weather market downturn and capitalise on long term growth potential. Investors should also consider their comfort with market swings and the ability to remain investing during turbulent times. Over the long term, the US S&P 500 Index has generated average annual returns of around 10% to 12%, although returns have varied significantly across different periods.

Commodities

Natural resources, including gold, oil and industrial metals, can play an important diversification role within a portfolio. These assets often have different return drivers to traditional shares and bonds, which may help smooth returns during periods of inflation or market uncertainty. Investors can gain exposure through commodities-focused or resources-based ETFs.

Real estate

A popular long term investment vehicle, normally held for over 10 years. However, investors need to consider the costs involved to buy and sell a property is a lot higher than shares given agent costs, stamp duty as well as ongoing maintenance costs. Property can often go through long periods of flat prices. 

Property and equities have both played an important role in long-term portfolio growth. While equities have historically generated higher returns over extended periods, property can provide diversification benefits and may appeal to investors seeking a tangible asset with rental income potential.

Conclusion

While returns vary over time, history shows that even modest differences in annual returns can have a significant impact on wealth over long investment horizons. Asset classes such as cash, bonds, property and equities each play different roles in a portfolio, but over extended periods, growth assets such as shares have generally delivered higher returns in exchange for greater short-term volatility.

When choosing which asset classes to invest in, a well-diversified portfolio is typically recommended. This is because by holding more uncorrelated assets, the overall portfolio volatility decreases. This can help improve the overall portfolio return while decreasing volatility. While holding as many uncorrelated investments as possible is generally a good idea, investors also need to consider their own risk tolerance and investment time horizons when making investment decisions.

To discover more call 1300 683 106 or email us on investordesk@nab.com.au

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The information contained in this article is believed to be reliable as at October 2026 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article.

©2026 NAB Private Wealth is a division of National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.

Investments