For the nervous, the twitchy, the ones looking for an excuse ... is it ever really a good time to invest?
Nobody likes to “catch a falling knife”. With shares, picking a plummeting stock’s bottom is more luck than skill.
Take investing any time in 2008. Every knife in the kitchen, sharpened by Gordon Ramsay and loaded with expletives, was falling at the same time. It was raining blades. Those who picked 2008’s bottom did so by luck. Because then it hit a new bottom in March 2009.
Are rising markets any easier? When a shooting star is streaking across the investment skyline, do you try to hitch a ride?
It’s easy to be despondent about it. “I’ve missed the easy returns”, “It’s got to correct a little from here”, or, for those invested through 2012, “If I double up now, I could average down my gains if markets soften”.
Last year, be in no doubt, was a corker. I don’t think enough hoopla has been spouted about how good a year 2012 was for most growth investment markets (shares and property).
Including dividends, Australia’s share market rose 19.74 per cent. International shares rose 18.72 per cent.
Australia’s listed property market did 32.79 per cent! Hedged international property rose 26.3 per cent.
Even fixed interest (bonds) sparkled. Australian bonds rose 7.72 per cent and international bonds rose 8.22 per cent.
The only “dud” investment last year was cash (and, perhaps, residential property). Cash did 3.98 per cent. Cash generally provides dull returns. Stable, but boring, like Kevin Costner in “The Postman”. A film, coincidentally, set in a post-apocalyptic 2013. This year could potentially be considered a post-apocalypse from the GFC, given the fizzer of the Mayan doomsday last month. Zzzzzz.
Cash, for those with mortgages, did better than 3.98 per cent if sitting in mortgage offset or redraw accounts, which provided a pre-tax return of closer to 7-8 per cent.
But ... back to shares and property.
Is it too late? If asset prices have moved that far that fast, is it too late to invest? And if not, can you dive in now?
The ASX200, at around 4700 points, is still more than 30 per cent below 2007’s peak. Real estate investment trusts (REITs) are similarly down a mile.
Australia’s banks are more profitable than before the GFC. Demand for our dirt is still incredibly strong. Our economy never really stopped growing. Unemployment is low. The Reserve Bank, while cutting rates, still has room to move lower.
Let me tell you a little secret. Come closer. It’s a little hard to hear over the “noise” of daily market movements. Closer.
Few of you will ever be stock-picking investment geniuses. I probably know more about the markets than most of you. And I know I won’t be.
But the stats prove shares and property are where long-term returns are greatest. Decades of returns show that. The awful returns of the last five years were preceded by stupendous returns for the five years’ previous.
What did your parents and grandparents pay for their first home? Which is now worth what?
You want wealth? It’s going to come from shares and property.
No-one every saved themselves to a fortune. And for those exceptions to that rule and did so, their lives were probably so lifeless, they made Costner’s (sorry, but you’re that boring, Kevin, you deserve two mentions today) Waterworld look thrilling.
Investing is long term. I know I was the one to raise them, but looking at yearly returns is fruity. And nutty. Like a Cadbury’s bar.
Sure, by missing the share market’s bottom in May/June last year, you’ve missed some spectacular returns. But by holding out waiting for the next plunge in the market below 4200 points, you’ll (most likely) be sitting on the sidelines forever.
Invest something now. Invest some more later. Invest something every year of your life.
You’ll never pick the bottom. Even if you did, it’s too hard to hit the “buy” button when everyone else is still selling.
Dollar cost averaging. It’s how your super is invested. Every month/quarter, your employer puts in money into your super account. The money is automatically invested. Automatic investing takes out emotion.
Just invest. Don’t bet the house. But start.
Don’t worry about missing the first 15 per cent. The best could be yet to come.
Like BigPond Money on Facebook.
Prominent financial adviser Bruce Brammall’s background is in journalism, where he spent about 15 years writing nationally for News Limited’s business and news sections. In 2006, he left to become a financial adviser and, in response to the success of Debt Man Walking, started his own financial advice consultancy, Castellan Financial Consulting where he now deals with a national client base.