Is now a good time to begin investing in shares?
by Peter Switzer
I am wondering if it is a good time to invest in shares. I am 27 and want to invest wisely for the future as I have saved up $30,000. What could this become if I create an investment strategy and I stick to it. What strategy would you recommend? Given the fact that our stock market has only regained about 40 per cent since 6 March 2009 and the US market has gone up over 100 per cent, it suggests we will eventually play a bit of catch-up. However, it could take longer than many optimists would like.
That said, as you are only 27, taking a 10-year approach to investing is always a sound idea. Over 10 years, history says good quality, dividend-paying stocks have paid around 10 per cent per annum – that’s share price growth plus dividends – that means your money should double every seven or so years. This guess comes from the rule of 72, which says if you take your return – 10 per cent – and divide it into 72, then that’s 7.2, which means your money doubles in 7.2 years.
So, if history is borne out, your money doubles to $60,000 in seven years’ time, $120,000 in 14 years, $240,000 in 21 years, $480,000 in 28 years and $960,000 by the 35-year mark! But wait, there will be tax and this will undermine these returns and the bigger your tax rate the bigger the slug. This is why some people would put their lump sum – your $30,000 – into super, which is taxed at 15 per cent compared to a top tax rate of 45 per cent plus the Medicare levy and the flood levy.
However, if you need to have access to the money, super is a problem as you won’t be able to touch the money until you are 60. So the smart idea might be to put $15,000 into super and the other $15,000 into shares outside of super, which can be used, say, to buy a home, which I reckon can be the best investment.
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: Thursday, April 12, 2012blog comments powered by Disqus