Stocks rule, OK?
by Peter Switzer
I know investing in stocks can be worrying and there’s an ad campaign cashing in on the high anxiety of being in shares for the retired, but history and even the current year’s results say it could be unwise to reject stocks.
The Dow Jones put on over 150 points overnight and it comes thanks to the Greeks embracing fiscal responsibility, at least inside the parliament in Athens. The Greeks on the street probably need a bit of coaxing before they will stomach this overdue economic medicine.
Locally, the SPI Futures suggest we should have another positive day on the stock market but who knows about shares on a daily basis? Regular readers know I’m adopt this mantra: long only and buy great companies at good prices and stick with them while they remain quality outfits.
That’s why the end of financial reading on stocks for the year made pleasant reading for me. The market indexes were up around seven per cent for 2010-11 and if you throw in, say, a dividend return of around four per cent, to be conservative, if your portfolio resembles the S&P/ASX 200, then you should be up about 11 per cent for the year.
This is miles better than fixed deposits or annuities. Average term deposits are around six to 6.5 per cent and if you wanted to tie up your money for five years, you could get 7.5 per cent but 11 per cent looks a lot better.
For property, the average national price dip for the 12 months to the end of May was 2.3 per cent but Perth saw around a 7.5 per cent fall while Brisbane gave up six per cent. Sydney actually put on one per cent but this is still a long way from 11 per cent.
And this was achieved in a financial year where there were the following challenges:
- Two Greek debt dramas
- A general EU debt problem
- A threat of a China slowdown
- A US economic slowdown
- A Japanese tragedy linked to earthquakes, a tsunami and a nuclear meltdown
- A Libyan war
- Protests in oil countries and a big spike in oil prices
- The death of Osama bin Laden
- A US political impasse over deficits and debt ceilings.
Despite all of this, our market returned 11 per cent, which is around the historical, annual return of good shares on a 10-year basis.
The bottom line is be careful of those who will bag shares in the wake of the GFC — history says shares, property, annuities and fixed deposits are all good assets to be invested in, but I’m wary of putting all of my eggs in any one basket.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Friday, July 01, 2011
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.