Ten Things to Remember about Owning Shares

Part of the Share Investing For Dummies Cheat Sheet (Australian Edition)

Investing in shares is a great way to increase your wealth. Stock market crashes do happen (as we saw in the global financial crisis of 2008–2009), but if you’re patient, have assessed your risk carefully and have a diversified portfolio that performs well, your nest egg will grow. And don’t forget — owning shares should be fun. Enjoy it!

  1. Shares go up in price, and also down. If you buy shares at a high price and the market falls, you could lose money. But if you buy more shares and the price goes up, you’ll make money on the sharemarket.

  2. ‘Get rich slow’ should be the share investor’s motto. Shares have an excellent long-term track record of generating wealth. If you choose your shares wisely, they will build your wealth better than almost any other asset — if you invest for the long term.

  3. Shares are a risky investment. Because shares generally produce a better return than other assets, they carry more risk, mainly because they are more volatile in price. Using shares as a short-term gamble can give some big wins, but this strategy is fraught with danger.

  4. Shares provide the best return on investment. You take an added risk by holding shares because they provide better returns than other investments. Investment is about creating wealth first, then using that wealth to fund your retirement. You need the capital gains that shares can bring.

  5. Shares need time to increase in value. With enough time and diversification (buying a range of shares spread across the economy), you’re unlikely to lose on the sharemarket. If you’re impatient, and you’re not well diversified, you could lose money in shares.

  6. Sharemarket crashes do happen. The sharemarket suffers occasion alarming falls, but has never failed to get back to, and subsequently exceed, its previous high point.

  7. Shares bring wealth through the magic of compounding. If you reinvest your dividends from shares, the rate of return you earn will be cumulatively larger than the amount you initially invested. Over time, compounding has the effect of accelerating the growth of your wealth.

  8. Owning shares means tax advantages. Your tax situation can benefit using the tax advantages that come with fully franked dividends.

  9. Owning shares means you’re also a company owner. When you buy shares, you’re buying a share of the company’s assets and its profits. In fact (and in law) you’re a part owner of the company.

  10. Sharemarket investment is fun. The sheer range of things that companies do is interesting and informative, and unlocks the mysteries of that nebulous beast, the economy. It’s never too late to learn about shares, and it’s a wonderful interest to give your kids.

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Share Investing For Dummies Cheat Sheet (Australian Edition)

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