The Truth About Shares

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Recently Steve was interviewed by News Corp finance journalist Anthony Keane. The original article appeared in The Advertiser on September 28 as ‘Don’t be Afraid, get your share’. We have reproduced the article here:

SHARES can be scary, particularly if you feel sick watching the value of your assets shrink by almost 20 per cent over a few months.

While the downturn in the Australian sharemarket this year has left many would-be investors running in the other direction, experts say the best buying opportunities are often times like these.

Catapult Wealth financial planner John Lawler says the share sell-off reflects global uncertainty and people trying to predict the future, but “they’re still the same companies they were”.

“If you just look at the dividends alone, the Australian market is paying probably twice the rate of income you would expect to get on a residential investment property,” he says.

The 5 per cent average dividend among major companies — which is closer to 8 per cent once you include tax credits from franking — is also much higher than savings account interest rates.

“If you have money, you need to put it somewhere — under the mattress is going to get you no return.”
Of course, cash and property don’t suffer the savage falls that we see in share prices. Lawler says at current levels, share prices are supported by their high dividends.

He says many big companies have been sold down because they announced downbeat outlooks at the recent profit reporting season. “Conservative guidance is easy to beat, and that’s when you get outperformance.”

Low interest rates, low fuel prices and low wage inflation are all good for business. “Eventually it’s going to turn around,” Lawler says.

“Don’t put all your eggs in one basket, always buy for the long term, and focus on the income which is more guaranteed than the capital.”

Wealth On Track principal Steve Greatrex also says a long-term perspective is vital for sharemarket investors.

“Moving out of shares now is only going to crystallise a loss in many cases,” he says.

Five-year outlooks for shares globally are much more positive than other investment classes such as bonds and cash, Greatrex says.

“Now that the market has fallen, if you want to consider it, now is the time.”

Greatrex says we are in a low-inflation and low-return world, and people will get better returns from shares than other asset classes but may need to lower their expectations.

“Australians are continuing their love of property but not so much shares. People panic and they get into shares at the wrong time — when things are really great — and get out at the wrong time — when things are really bad — which doubles their losses.”

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