Lesson One
Your investment is only as good as the economic environment
In a sound and healthy economy, conditions are conducive to economic enterprise operating profitably. By definition, inflation will be well under control; that is, money will hold its purchasing power and investment returns will not be eroded by rising prices.
Also in a low-inflationary environment, increasing productivity can take place, leading to increasing profitability and capital values. Companies have more funds to invest in increased productivity; they make even more profit and pay bigger and bigger dividends. And so the cycle of wealth creation continues.
Lesson Two
It’s not about the All Ords
It’s not about share prices, nor about buying and selling (ie trading). It’s about creating a secure, continuing income stream.
For example, let’s say you owned 2,000 Woolworths shares, purchased in 1997. What if the selling price of your shares had increased over the past year by (say) 10%? What would you do? Cash in and go on a spending spree? No, of course not.
But if your shares had returned you a dividend – an actual payout (‘hot cash’ so to speak) - of say $1500, would you feel free to spend it? Of course you would. Because this is the real return on your investment. And you wouldn’t be jeopardising the security of your investment; you’d be conserving it for next year’s bounty!
(By the way, your 2,000 Woollies shares would actually have paid you a dividend of $2,780 over the past year (2015). In your PensionFund this would actually be $3,971 due to tax credits. Not a bad year’s Income return on a $10,000 investment wouldn’t you say?)
(And, incidentally, your $10,000 investment – essentially because of current dividend earnings - would today to be worth $48,980!)
Lesson Three
Don’t bother trying to do it yourself
Our position at Wellings & Associates is not to recommend direct share ownership, but to use managed funds.
Why? Well, why bother, when you can have a well-diversified portfolio (even if you invest in only one fund), well-diversified investment management, all the book-keeping looked after, plus regular uptodate reports and tax statements.
And the cost? A mere 1 or 2 percent of your portfolio, per year.
And with the ongoing guidance of qualified, experienced financial advice, what more could you ask?
So please don’t go it alone.