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Q&A - Have I missed the boat?

Q. What is your view on the stock market? I am 25-years-old and have missed out on the current rally and wonder is it too late to get in? How should I do it? 

A. No, I don’t think it is too late to buy into the stock market considering the fact that you are 25-years-old and that you have heaps of time to go before you retire. And anyway, when you retire from work, which is set to be pushed up to 67 years of age soon, you still will have to invest and having some exposure to the stock market will probably be needed if you don’t want your retirement lump sum to disappear before you do!

Lots of investors, yes professional ones, have waited until it looks like the worst of the global financial crisis is behind us. This is why when the market falls, it does not drop too far. That’s because a lot of money is on the sidelines in investment and super funds, so when the price falls on good companies, those who were cautious are now increasing their exposure to shares. You should look at shares as giving you part-ownership in the companies that you buy. That’s why you should like the business in terms of its potential. You should be trying to get a portfolio of at least 10 companies or even 15. They should be big name companies that have a history of paying dividends, as one-half of all returns from a good parcel of different quality shares come from dividends.

History says good shares — say the top 20 stocks on the ASX stock exchange — should return 10-12% per annum over say 10 years. You can use the internet or a stockbroker to buy the top 20 stocks, but it is easy now as you can buy an exchange traded fund (ETF) which does the work for you.

I reckon for someone who wants to build up some savings with good returns, they could set a five-to 10-year goal to buy shares or an ETF each month or quarter and do it no matter what. If the market falls, keep doing it. If it rises, keep doing it. Sure, if you get say four or five great years of returns, you could play safe and go to cash and slam it into a fixed rate deposit at a bank, but that will add risk to the game. You could get out too early. Some people just buy and hold and don’t worry if a rough patch happens. These people know the history of good company shares is that they will rebound and go higher than the previous high.

Do lots of reading and think about how much of your savings you want to expose to the market. The younger you are the more you can risk on the market. As you get older you should reduce the exposure.

Best of luck and make sure you keep reading and thinking about investment. Finally, get a great system, understand it and stick to it and the performance of great Aussie companies will reward you, over time.

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: Monday, October 19, 2009

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