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New to the stock market – is now the right time to buy shares?

I have never been in the stock market before and I am wondering if you think this is the right time to invest in the stock market. I have been a conservative investor but I have recently sold an investment property and have $150K to invest. So is it the right time? And what would you target?

You have not given me your age, so it can be difficult to give you guidelines — I can’t give you advice because I don’t know your special circumstances.

You see, if you were close to retirement my advice could be different than if you were 25 years of age. I would be more gung-ho as a 20-something than I would be with a 55-year old sweating on retirement.

That said, as we are all living much longer, even retirees will have to be invested in assets that bring better than safe rates of return if they want to avoid running out of money before their time is up!

For young people, I tell them the story of $10K invested in a portfolio of shares that well-represent the All Ordinaries Index between 1978 and June 2007. It rolled over and over through seven crashes and corrections and ended up turning into over $500K before tax. This includes the dividends being reinvested.

And if the $10K was in a super fund, it would have been taxed more beneficially. I was talking to an old, investment advisory firm lately and their advice to their clients read like this:

“We continue to emphasise the importance of ensuring portfolios are constructed of leading companies. While capital appreciation may remain on hold in the short-term, dividends will continue to provide regular investment returns.”

My view is to look past the present concerns if you want to get involved in the market. Share prices could fall again but the rescue packages are better and governments are more serious about improving things.

Go after good quality companies — strong brand name businesses — make sure they are good dividend payers. Try to buy at least 10 companies so you are only exposed to each company to the tune of 10 per cent, but I prefer 20 companies as a goal, so you are only 5 per cent exposed to any one business.

Get these companies and become an expert on them. Read about them and as circumstances change, you might drop a few of them. But all in all, you should become a long-term investor of great businesses.

Warren Buffet says he buys American industry and we should buy Australian industry and in the long-term, returns, history shows, are impressive.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

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, December 18, 2009

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