I want at the outset to differentiate between the share market and other financial market instruments. Many of Hubb clients trade in currencies, commodities and other futures. I have a history in these areas having used the techniques I talk about in my columns to hedge currencies and commodities. Not to take risk but rather to minimise risk and this has been invaluable for me over the years.
My on-going specific interest is in shares and I believe this is a basic starting point, in any case, for investors interested in non-property investing - and many people will not extend their interest beyond shares.
In my decades of experience in the markets I know from much discussion with investors that they either fear shares and/or they do not feel they have a rite of passage to this bewildering world of investing. Yet they are missing out on opportunities and are not spreading risk.
Shares may be seen by many to be bewildering but only because they have not taken time out to examine the opportunities.
Most people are heavily invested in property by the fact they own a home and that is excellent. But they ignore shares overlooking the fact that a sizeable portion of most investors/tax payers investments outside property, are in superannuation. I would hazard a guess that most individuals superannuation are in shares and furthermore their investments underperform the market by a long measure. After I got took leave from full time corporate executive roles in 1999 I did a diploma in Financial Planning and worked briefly for a large player in the field. I resigned in disillusionment as I watched poorly qualified advisers provide subpar advice. It was then I decided I would be a full time investor for me.
In control of my own financial destiny.
Even if you don’t choose the full time route you should at least have enough knowledge to manage your adviser and to be able to make a learned input into the process of managing your hard earned monies. In the world of financial advising the much heralded mantra is ‘’one third one third one third’’ - that is a third in each cash, property and shares. Now I don’t really subscribe entirely to this but I think it is important to have a balance in where your funds lie.
A big portion of so called baby boomers are almost all property and because of the boom in property prices since they first bought 40-50 years ago they have become multi-millionaires – well – by sheer luck.
The big question is can this continue?
History is a great indicator of the future but I would not really bet on the property boom continuing for the next 50 years. Few buyers could have imagined in their wildest dreams that they could have made such extraordinary money. That was chance. I don’t want my success to be determined by chance – I want to drive my success.
Many would say I have a sharemarket bias. That is only partially true. I am a baby boomer and thus enjoyed much success with property. But I have also had much success with shares and of course success will colour ones view – no matter which direction.
I like shares yes because they enable me to balance my instruments across several investment classes. But I also like the flexibility that shares afford me. My shares are now largely in my superannuation fund so this is a tax free environment – which many Australian do not take advantage of. Clearly paying no tax is a head start to superior returns. Of course, your primary place of residence and some property in superannuation are tax free also. But in general, ‘free’ investments are not tax exempt.
I like the liquidity of shares. I can be fully invested or zero invested – depending on my view of the economic outlook. I can choose where I want to invest my money – in banks or mining or property or even cash – yes through shares in superannuation. I am happy to be largely fixed in property but I want liquidity – and shares offers me this.
There are many other pros and cons to each property and shares – but overwhelmingly I want diversification in my investments.
Tune in next week when I will talk more in depth on getting started. In baby steps. I will attempt to demystify shares.
Enjoy the ride