Investing in shares is one of the best ways to grow your wealth. However, knowing how to successfully navigate the share market is essential and requires a comprehensive understanding of what drives the Australian and global share markets, with a clear strategy for how you execute.
In this blog, we will illustrate how good financial advice can help you maximise your returns and reach your financial goals, outlined through the following points:
The Australian Share Market: An Overview:
The Australian share market is a collection of over 2,200 companies valued at over $1.6 trillion in 2023. The Australian Securities Exchange (ASX) is at the heart of our market and serves as the primary exchange where investors can buy and sell shares of listed companies. Encompassing various sectors including, financials, resources, healthcare and technology.
The ASX provides investors with a wide range of investment opportunities, and understanding the associated dynamics and trends within each sector allows investors to make more informed decisions on their share investments within the stock market.
The Global Share Market: An Overview:
Globally there is approximately 58,200 listed companies valued at over $108 trillion in 2023. For perspective, some of the largest companies are valued at more than the entire Australian stock exchange, like Apple, which is currently the world's most valuable stock at over $3 trillion. Each country has their own stock exchange, rules and regulations. This adds some complexity to international investing, but considering the size and opportunity that international shares provide, it is a valuable part of the market to invest in, often outperforming Australian shares.
Global shares are often best accessed via managed funds and other managed investments like ETF’s and with financial planning guidance, can be an attractive way to diversify and improve your overall investment return.
Fundamental Analysis and Research:
Fundamental analysis is an important part of successful share investing. It involves evaluating a company's financial health, profitability, competitive position, and growth prospects. As an investor, factors such as earnings, revenue, dividend history, management capabilities, and industry trends should be carefully considered. Conducting thorough research and analysis enables investors to identify companies with strong fundamentals and long-term growth potential. Fundamental analysis forms the foundation for making informed investment decisions and building a well-rounded share portfolio.
Diversification and Risk Management:
Diversification is a key principle in share investment that helps manage risk. Spreading investments across different companies, industries and asset classes can provide investors with the opportunity to reduce the impact that any single company’s poor performance may have on their overall portfolio. In Australia, achieving diversification can be accomplished by investing in shares across various sectors, including finance, mining, healthcare, telecommunications and consumer goods.
Diversification can then extend beyond domestic shares to include international shares, providing exposure to global markets. By diversifying your holdings, investors can enhance the stability and resilience of their share portfolios.
Investment Strategies:
When investing in shares, investors have the option to adopt either a long-term or short-term investment strategy approach. It's an age old question of investors, is time in the market better or timing the market? Opting for a long-term investing strategy focuses on holding shares for an extended period, this typically means for five years or more, to capture the potential for capital appreciation, as well as dividend income. This approach aligns with the principles of compounding returns and allows investors to benefit from the overall growth within the share market.
On the other hand, opting for a short-term strategy aims to take advantage of short-term market movements and volatility. Investors who choose to implement this type of strategy may engage in activities which include momentum following trades. Active share managers will typically be reviewing share holdings and buying and selling based on their assessment of fair value at the time, as share markets notoriously over value and under value shares at different stages of the cycle, creating opportunities to trade on peaks and troughs.
The investment strategies available are many and varied and can include direct holdings and indirect. Short selling (to make money in falling markets), algorithmic or formula investing, charting, index investing, value and growth style investing, small company, large company and more. With a plethora of options available it is it is important that you understand how each of your investments blends to reduce your volatility and make your return more reliable. This manages the inherent risk that there can otherwise be investing in shares.
Financial planners can help you develop an investment portfolio that suits your personal needs and objectives and that is considerate of your risk tolerance and time horizon.
Dividends and Income Generation:
Dividends play a significant role in share investing, particularly for income-focused investors. Many companies listed on the Australian market pay regular dividends, in turn providing a steady stream of income to shareholders. Dividends can be an enticing feature, as they can supplement your overall return and contribute to a passive income stream. Dividend reinvestment plans (DRPs) offer investors an option to automatically reinvest their dividends back into additional shares, in turn compounding their returns over time. This system allows investors to potentially increase their shareholding without incurring additional costs. Australian shares have a higher average dividend yield than some other global markets and attract favourable franking credits, that make the dividends more tax effective. High dividend companies with franking credits can be particularly attractive for retirees and are always considered as part of an investment plan that includes shares.
Market Volatility and Emotional Discipline:
The share market is subject to volatility and fluctuation which can be influenced by economic conditions, geopolitical events and market sentiment. As such, it is vital that investors remain disciplined and avoid making hasty decisions based on sort-term market movement. In reality, most of us struggle with this, which is why partnering with an objective financial advisor often makes sense.
Emotions can significantly impact effective decision making, and often leads to suboptimal investment outcomes. Developing emotional discipline is essential and maintaining a long-term perspective can help you navigate market turbulence. Keeping your focus on long-term investment objectives, as well as avoiding temptation to engage in impulsive trades is key within any successful investment portfolio. Maintaining a disciplined approach to investing includes understanding that market volatility is a natural part of the process and that long-term trends tend to prevail over short-term fluctuations.
Maintaining emotional discipline will provide you with opportunities to establish a more well-defined investment plan which can be maintained. This plan should consider risk tolerance, investment goals, and time. Regular review and rebalance of your portfolio will allow you to continuously optimise your strategy and portfolio based on changing market conditions. Helping ensure that your investments remain aligned with your desired risk profile and long-term aspirations.
Secure Your Investments with Advice from Yield Financial Planning:
Investing in shares in Australia and abroad offers tremendous opportunities for wealth creation and achieving financial goals. However, it requires a comprehensive understanding of the share market dynamics, implementation of effective investment strategies, and disciplined decision-making.
Yield Financial Planning, has a wealth of experience and expertise we share with our clients, and we can provide you with valuable support and guidance throughout your share investment journey. Our team keep up to date with the latest trends, regulatory changes, and market insights. This allows us to offer tailored advice and strategies that align with your investment goals and risk tolerance. Get in contact with an advisor today, to learn more about how a strong financial plan could maximise your investment portfolio and reap long-term rewards, so you can enjoy what you have worked hard to save.
