Analysis: It's a challenging time for investors
IT'S a challenging time for investors. Stock markets are plunging and there are headlines everywhere about property prices dropping and rents being squeezed as the glut of apartments coming onto the market creates an over-supply of rental accommodation.
I agree it's scary, especially for new investors, but the trick is to remind yourself of the basics. The three main investment options are cash, property and shares, and over the long term, cash will almost certainly be the worst performer. Only property and shares have the ability to deliver capital growth, which is more lightly taxed than bank interest.
This is why I have always recommended never investing in shares or property unless you have a seven to 10-year timeframe.
This gives you time to withstand the inevitable ups and downs of the share market, or the long flat spells of the property market.
Shares can be a particularly scary investment because their prices can fluctuate wildly, and a company you invest in can go broke, taking your entire investment with it. Babcock &
Brown and ABC Learning are just two examples.
But as always, every investment decision has an upside as well as a downside. Because you can buy shares in small parcels, a savvy investor has the ability to diversify by investing in several companies or a managed fund.
Just remember it is normal for the share market to have four bad years in every 10, which means we can expect six good years every decade. Consequently, every down year brings us closer to an up year.
You may also take comfort from a recent story about a single man, an ex-public servant, who died in Tasmania at the age of 103. He left a $3 million share portfolio to charity, as he had no dependents. His strategy was to ignore market fluctuations and keep reinvesting his dividends.
Remember, if you own shares in a top company, the dividends will keep on coming even when the price is bouncing around.
Noel Whittaker is the author of Making Money Made Simple. His advice is general and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org.