Investing in the share market
Many Australians have an active interest in the share market, and most of us are already holding stocks either directly or through our superannuation fund in some of Australia’s largest companies.
The ability to trade stocks has never been easier. Recent market events however clearly illustrate the dangers associated with entering into these markets without a level head and a planned approach. New hybrid products and geared investment strategies only add complexity and volatility to these markets.
Investors should also consider that the Australian equity market only makes up about 2% of the overall global market and thus may not meet all their financial objectives in delivering growth in times when the domestic market may be depressed.
Shares (commonly called equities) can be a sound long-term investment but are very risky as an investment in the hope of making a quick short term gain. Before investing in shares, you should understand and explore the benefits and risks.
Some of the benefits of investing in shares are:
- Potential for good growth in the value of the asset over time (capital gains)
- Potential income from dividends,
- Potential income can be after-tax income (franked)
- Lower tax rates on long-term capital gains
Risks of investing in shares:
- Share prices for a company can fall dramatically, even to zero, depending upon markets and what’s occurring within the company
- If the company fails, you are the last in line to be paid, so you may not get any of your money back
- There is little consistency in the performance of shares over the short term (unpredictable), shares will go up and down from month to month, and the dividends may vary
Any investors deeply concerned about the risks associated with share market based investments should perhaps focus on less volatile income generating investments. While these investments may not necessarily offer the promise of sizeable future capital growth, they nonetheless have a lower potential to lose capital value, and can pay reasonable returns in the form of regular income.
Ways to invest in shares
Investing in shares requires careful consideration and a clear understanding of the risks as well as the potential gains; to learn more speak to a Lifespan financial adviser in your area.