Results and Risks
Over the long term shares have traditionally made excellent returns. Historically, the Australian sharemarket has averaged 7.5% return per year after inflation, even taking into account market crashes.
Shares can provide you with an income stream in the form of dividends. Companies wanting to distribute all or some of their profits to shareholders can do so by paying dividends. The size and regularity of the dividend is determined by the Company’s Board of Directors – standard practice is to pay dividends annually or six-monthly. Some companies will pay dividends in cash while other companies will give you the choice of taking your dividends in cash or of reinvesting them in more shares.
Other advantages of investing in shares include choice, flexibility, liquidity and diversification. Generally you can buy and sell shares when you want, you know the value of your investment at any point in time and you can spread your risk across various investment types (resources, property, finance sectors, etc.).
The Australian Securities and Investments Commission’s consumer site MoneySmart outlines the benefits and risks of investing in shares.
Download the booklet Getting started in shares from the Education section of the Australian Securities Exchange website.
Are shares risky?
Shares often get bad press. Words like ‘crash’ and ‘plummet’ are used in relation to sharemarket movements and this makes investing in shares appear risky – particularly lately. In fact, shares have historically risen over the long-term, but this has been punctuated with periods of short-term volatility where prices can go up or down very quickly.
Author of Motivated Money, Peter Thornhill, says “What history shows us is that after every crash, there is gradual, solid recovery.” While no one can predict the future, we can look to the past to know that the economy (and the share market) has always recovered after a downtown – even after the Great Depression and two world wars. Indeed, financial experts such as Warren Buffett say this climate may actually present opportunities to buy good quality, cheap investments.
Experts say risk can be minimised by:
• Seeking good advice, researching companies thoroughly and only investing in quality shares;
• Adopting a medium- to long-term investment view of five years or more – this can help minimise the impact of short-term volatility in the sharemarket;
• Diversifying – making sure you invest in different asset classes and sectors to spread your risk around.
This chart shows you how Australian shares have performed from 1982 until 2014.
Find a financial adviser
Check out the Australian Securities and Investments Commission’s website MoneySmart – it has loads of great information about obtaining personal financial advice and finding a qualified financial adviser. Experts often suggest you find an adviser who charges by the hour instead of receiving a commission.
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