For decades, Australians have been told the same thing…
Buy shares, hold for the long run, and you’ll be fine.
However the most astute investors these days are focusing elsewhere. They are investing outside of the ASX and diversifying their portfolios.
Why?
It’s changed, OK? Markets have swung more. Inflation took a bigger bite. And just relying on stocks seems too precarious.
Property prices have surged. Cash sitting in savings barely keeps up with rising costs. The old playbook of “buy and forget” is starting to crack at the seams. Smart investors are asking better questions. What other assets can pay you while you sleep? Where can your money actually work harder for you?
Passive income investing is where smart money is going these days — and for good reason.
Time to break it down…
Here’s what’s inside:
- Why Shares Alone Aren’t Enough
- Where Smart Money Is Going
- The Rise Of Passive Income Investing
- How To Start Diversifying The Right Way
Why Shares Alone Aren’t Enough
The Australian sharemarket is heavily concentrated.
A few banks and mining stocks dominate the ASX 200. If they stumble, so does your portfolio. That isn’t diversification. That’s diversification wearing a business suit.
And shares are only one piece of the puzzle.
In reality it’s nearly 51% of Aussies who have investments outside of their house and super fund (that’s 10.2 million investors). However lots of these investors are just layering the same type of asset.
That’s not how smart money plays the game.
The wealthiest investors spread their bets across:
- Property
- Private credit
- Infrastructure
- Bonds
- Alternative income funds
Essentially, this is passive income investing – building income from a number of sources rather than relying on share price performance alone. For many Aussies, this has meant investing in the best mortgage fund Australia has available. These funds use investors’ money to provide secured loans for property purchases and distribute monthly income payments.
It’s a simple idea that has been quietly building serious momentum.
Where Smart Money Is Going
OK but where is smart money going? Time to drill down to the asset classes worth watching.
Private Credit and Mortgage Funds
Private credit is one of the fastest-growing sectors in Australia.
Banks have withdrawn from some lending arenas creating space for private lenders. This is great news for investors as returns can exceed those of bonds/term deposits.
ASIC values Australia’s private credit market today at approximately $200 billion, half of which relates to property lending.
Mortgage funds sit inside this space.
They borrow investors’ money and lend it on mortgage. The borrower pays interest. You get the interest paid back to you as income.
Here’s why investors love them:
- Steady monthly or quarterly income
- Backed by real property as security
- Often less volatile than shares
- Hands-off — the fund manager does the work
That’s the kind of setup that fits the passive income investing playbook perfectly.
Infrastructure
Toll roads. Airports. Renewable energy. Data centres.
These are economy driving assets. And they generate stable cash flows, year after year.
The majors super funds have been heavily investing into infrastructure over many years due to the attractive long term stable returns it provides. Retail investors can now gain exposure through listed infrastructure funds.
It suits you if you are after stable growth with less sharemarket hype.
Real Estate Beyond Your Home
Property is more than just buying a house.
Investments range from commercial property, to industrial sheds, childcare centres, aged care facilities and even data centres. Many of these property investments can be made through unlisted property funds or REITs.
What’s the appeal?
- Regular rental income
- Capital growth potential
- Lower correlation with shares
Passive income investors can benefit from owning this type of asset.
Bonds and Fixed Income
Bonds are not the most exciting asset on the list…
They also provide something stocks often don’t: steady income and protection of principal. Treasury bonds, corporate bonds and even high-yield bond funds pay investors a reliable stream of interest payments.
Interest rates have been higher lately. Bonds become a lot more attractive.
The Rise of Passive Income Investing
So why is passive income investing taking over conversations?
Because Aussies are tired of:
- Riding sharemarket rollercoasters
- Not knowing how to time the market
- Watching their portfolios swing wildly
Passive income investing turns things upside down. You’re no longer focused on capital gains. Instead, you create an income producing portfolio. The payments from your portfolio can be reinvested or used to pay living expenses.
It’s all about cash flow, not just paper gains.
Industry data echoes this trend, with over 90% of experts predicting the proportion of the corporate debt market comprised of private credit will continue to increase over the coming 10 years. Expectations like that are certainly bullish.
How To Start Diversifying The Right Way
Are you looking to duplicate what the pros have done? Keep it simple.
Here’s a simple approach to follow:
- Look at your existing portfolio. How much of it is invested in shares? If it is greater than 70% you are over concentrated in one asset class.
- Have a Goal: Do you want growth? Income? Something in between? Having your goal in mind will drive the rest of your decisions.
- Choose 2-3 alternative assets: You don’t have to do everything at once. Focus on one or two buckets (i.e. a mortgage fund or an infrastructure fund) to start.
- Reinvest the dividends: Compounding applies to passive income just as much as it does to stocks.
- Review annually: Markets evolve. Review your portfolio regularly to ensure it still aligns with your objectives.
The goal is balance.
You aren’t trying to avoid owning shares altogether. You’re trying to diversify your risk so that when one asset class performs poorly, the others can pick up the slack.
That’s what real diversification looks like.
Bringing It All Together
Looking at alternatives to shares is more than just a fad. It’s an intelligent long-term investment strategy. The investors who succeed over the long term are the ones who:
- Spread their money across different asset types
- Focus on income, not just capital growth
- Stay patient and stick to the plan
Passive income investing allows you to do just that. With more opportunities available than ever before — mortgage funds, infrastructure, bonds, property and private credit — there’s no good reason to be too heavily weighted towards shares these days.
Start small. Stay consistent. Watch your portfolio grow.
That’s how smart money does it.
