Should I invest in the share market?

The LifeStyler is not a financial advisor and this is in no way personal advice. Past performance does not guarantee future performance.

A few weeks ago the two blokes were discussing the share market and talked about how they had lost money.  So today I will add a little balance to the conversation.

First the LifeStyler’s golden tips.

1. Don’t just buy 1 stock you need to diversify
2. You should invest long term
3. This is not gambling and if you start early your money should grow many times over your lifetime.

With any investment, there is a risk. A safe bet is to put your money in the bank but currently, you will earn about 1% interest. If however, you bought that same bank shares your dividend return would be at least double.  However, if that bank had a bad year your shares may pay nothing.  So by investing in more than one share you spread your risk. Diversifying you will have some winners and some not so much winners.

We all dream of making a quick buck but you should be buying quality shares that over time will increase in value as well as hopefully pay a dividend. Now we all know the share market has recently taken a big hit so let’s look at some numbers.

If you invested $10,000 spread across the whole Australian share market in 1989 30 years later in 2019 that would be worth $146,337 or 9.4% per annum growth.  The same equation in the USA is $186,551 or 10.3%. In those 30 years some annual returns were negative and others much more than 9%.

 If we now look at the effect of 2020 the Australian share market peaked in February 2020 it then fell bottoming out in March and has slowly recovered ever since. At the current time, the Share market is the same value as it was in Feb 2019.  So in my mind, that is a pretty good result as to only loose 1.5 years returns in the scheme of things is amazing.  So if you left the money in the bank over that 1.5 years $10,000 would be $10,150 versus still being $10,000 if it was in shares.

If you want to invest in the share market you need a share trading account.  Most banks offer online accounts as well as some share broking organisations.  The most popular in Australia is Commsec which is part of the Commonwealth bank. They also offer a product called Commsec pocket which allows you to invest with as little as $50 into an ETF.

An ETF or Exchange Traded Fund is a great way to get started in share investing it gives you diversity in the share market and takes the pain away from decisions as well as reducing your risk.  Simply it is a basket of shares that you buy as one stock versus buying shares in individual companies. An EFT will deliver average results of the share market based on the investment strategy of the EFT has chosen.

Some popular EFT’s include (Australian Stock Exchange Share code):

VAS – Australian basket of shares
VGS – International basket of shares
NDQ – American tech stocks basket of shares

If you are interested in understanding more about shares there is much to read on the internet including asx.com.au which is the Australian share exchange website.  The lifeStyler is also a big fan of the Australian “Motley Fool Money” podcast who are entertaining as well as providing great information on learning to invest. Cheers.