Investing in shares is too hard and too risky…isn’t it?

Investing in shares is too hard and too risky…isn’t it?

Yes, a scary subject for many – shares and sharemarkets.  Unfortunately, images that often come to mind for many include slick-talking, pointy toed Wall Street Traders, silver screen glorified ‘Boiler Rooms’, scammers who prey on the misinformed, red-faced, bellowing 80’s-esque trading floor brokers etc.

Sadly, this Hollywood misconception, along with media misrepresentation, can turn many ‘would be’ investors away from this highly important and sensible asset class.

Here are a few key things to think about with regards to sharemarket investing, which may encourage you to explore it some more when considering your overall financial plan going forward:

  • Investing in shares over the long term has proved to be one of the most lucrative ways to invest when compared with other asset classes. For example, somebody who took an overall position in the US Market in 1970 and just left it there until 2016 would have realised a gross return of 9263%!** (or turned $100 into $9,363)**. That’s an investment return that is pretty hard to ignore!
  • Investing in sharemakets enable economies to grow and flourish, as companies have access to capital which induces further investments and growth
  • Investing in shares helps an investor diversify away some of their risk by holdings assets in different industries, geographical regions and currencies.
  • Investing in shares is a highly liquid way of holding your capital – in other words, if you need your capital back quickly for a bathroom renovation or overseas holiday, it can be as easy as selling your shares on an exchange which, in most cases these days, takes around 4-5 working days to convert to cash
  • Investing in shares doesn’t have to be risky IF you are well diversified with your share exposure. Holding a handful of speculative mining or bio tech stocks is NOT diversification. Yet sadly, many ‘get rich quick scheme’ chasers want the big bucks quick. Investing in shares is best done with a longer term horizon (see point 1 above..)
  • One of the main reasons why people lose money in the share markets is by simply following the crowd. They ‘buy high’ when everyone is doing it and ‘sell low’ when everyone is getting out…by simply ‘staying in’ through the ups and downs, you can avoid a lot of the pain and do better than most, provided you are DIVERSIFIED!

As you can appreciate, shares are a pretty convincing way of investing, provided you do it right. The important thing to do when considering sharemarkets as part of your investment strategy is to talk a professional who understands the pitfalls along with the positives and can give you impartial, practical financial advice.

DISCLAIMER: The above comments are general in nature and DO NOT constitute financial advice. Before making any decision, we recommend you consult a financial planner or investment adviser to take into account your particular investment objectives, financial situation and individual needs. A full disclosure statement is available on request and free of charge.

** based on data obtained from Federal Reserve database in St. Louis representing a compounding, general index position in the S&P 500 US Market Index. Go to http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Author: patrick

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