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Should I jump into the share market?

Q. Every day when I get up and see that the stock market is up again, I think I have missed the boat with this rally. Should I wait for a big sell off, or get in and keep my fingers crossed that there won’t be a big sell off? I am in my 30’s, have a good job and my wife and I have a bubs on the way but my budget tells me we have $2,000 a month for shares. Should I jump in now? 

A. This is the type of tough question I am getting all of the time at the moment. The other one is — should I fix my home loan interest rate? Both are hard questions but the first is easier for me to answer because you are in your 30s. It means you have 30 or so years left in the workforce. There’s an old cliché that works best for younger investors and it is: “It’s not timing the marker but time in the market.” Of course, it would be great if you first started in early March this year, which would have given you a 50% plus jump on your invested money. I got a similar question a few months ago and I thought a pullback of the market was likely but I argued that would be a buying opportunity. For my family super fund, when the money becomes available at the end of each quarter I invest it. That means I don’t play punter trying to guess the sometimes ‘unguessable’ stock market. My simple plan is to buy great Australian companies — about 15 to 20 — and most of them pay good dividends. They average around 5% or more and so when the share price rises, it‘s cream on the cake compared to our money in a bank at 5%. There are new products called ETFs, which can give you, say, the top 20 stocks in one ‘share’ and this gives you great exposure to some of the great business names of Australian industry. The market could fall, but if you keep buying good companies they will survive and thrive. A word of warning, an unforseen development could KO the stock market but that’s why I say have say 20 companies so if a few companies have a shocker, the others can make up for the losers. Don’t put all of your money in shares. Fixed deposits and property gives you diversity. However, a regular commitment to great stocks can be really rewarding. Don’t be afraid to go for it, provided you are a long-term investor, and if you don’t want to touch the money you could do your share investing through a self-managed super fund or by simply bumping up your contributions to your existing fund through salary sacrifice. 

 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 26, 2009

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