Don’t Do Shares….. It’s risky!
Let me get one thing out there before we start. I am not a financial advisor. I and WOW! Advisors don’t have a Financial Services Licence that allows us to tell you what to invest your precious money into.Apparently, as a professional accountant and business advisors we are not good enough or professional enough to even suggest you may wish to consider setting up a self-managed superfund even if I have known you for the last 15 years.
If I do, every federal and state regulator in the country will ensure I am disembowelled, shamed, humiliated, and suffer many ‘bad things.’ Now I know these are the words Trump would use, but I need to be clear here. I would love to make a difference for you, but I don’t love you that much.
But apparently if you’re 20 years old with no experience and no wealth it’s OK to be on Instagram and tell the world you should invest in Cyper.comcoin the latest Crypto currency. According to our regulators that’s perfectly acceptable. Oh by the way…please don’t look up Cyper.comcoin – it does not exist – except in my head.
Or you could sit down and have several boring and grey conversations with a financial advisor whom you may have just met last week. Because they, once they have completed a checklist, know you inside out including what is right for your family. Yeah right.
Anyway, if you do sit down with me, I will probably tell you that you need to invest in something. And we will have a brief discussion in general terms what investments you can invest in.
When it comes to shares, I usually get two responses. One of those responses is absolute fear.
Now Indians are generally risk adverse when it comes to investing in the stock market. That’s mostly because our wealth is new not established. What I mean that is Indian wealth did not come from our ancestors in gold and green notes. They came from hard labour work which we or our parents did. So, losing it is painful. Very painful. So, we do anything we can to make sure we don’t risk it.
Here’s the thing. This fear is usually not based on evidence. It is based on headlines by the media or the share market collapsing and a general lack of education and understanding about how the stock market works.
So, this article is all about shares and why they are not as scary as you think they are.
There’s another thing too. Even if you are a scared like hell about the stock market you are probably already invested heavily in it already. That’s because if you have a Superfund balance it is likely to be invested in shares. And that is because as an investment strategy they tend to be quite good.
There’s has been a lot of financial turmoil in the last 30 years. The Dot-Com Bubble of 2000–2002 which resulted high stock values for companies that were loss making. These crashed rapidly, wiping out trillions of dollars in tech value. That was an ouch period.
Then we had the Global Financial Crisis of 2007–2009. This was when the financial brains (bankers) of our world decided that risky home loans were a good thing.
Until it wasn’t.
And that resulted in banks failing over themselves to collapse like a pack of cards which led to the worst economic downturn since the 1930s. That was not just ouch it was proper scary too.
The European Debt Crisis came about between 2010–2012. Several European countries realised that you cannot keep borrowing money and basically went bankrupt. Who would have thought?
Covid19 came about in 2000 where every trading company stopped trading and the market crashed. It was great for we had clear blue skies but pretty crap for our portfolios as they were a murky grey.
And finally, we have the banking shocks of 2022–2023 where interest rates had to be hiked up because governments and bankers did something stupid. Again.
And because this is the stock market there is probably something that will go wrong soon. So, as you can see this is quite a tricky road to run so it’s not surprising many are totally crap scared of the stock market.
But what would have happened if you invested in $10,000 in 1996 in shares or left it as cash? And I admit in 1996 $10,000 was a decent amount of dough.
Well, if you had put it in a high interest paying deposit savings account it would be worth about $32,000. If you brought Australian shares, then they would be worth about $133,000.
That then is a $100,000 difference. Not bad.
There is always talk about timing when it comes to the stock market. When do you get in and is it the right time is apparently the biggest question you can ask. But is it?
So, let’s assume you are awful at it. Diabolical to such as extent that you are the worst investor in the world when it comes to timing your investment in the stock market.
You invest $10,000 in various Aussie and Global index funds … right before the dot-com Tech crash.
Then the day before the banks started to fail and collapse over themselves for the start of the Global Financial Crisis you dump another $10,000.
And then finally because you are a genius at timing the market so badly you decided to dump a further $10,000 before Covid raised its mad virus head.
So $30K of your hard-earned money at the worst possible time in the last generation.
Apparently, some clever people at Vanguard along with some bearded, crazy haired white coat scientists and a single nerd who knows how to use a computer ran some numbers as to what would have happened to your portfolio. And what they found was amazing.
Because they say that your portfolio would still be worth $117,000. Put in $30,000 at the worst possible time and still walk away with $117,000. Not bad for the worst investor in the world.
And just so you know that is still $85,000 more than if you kept your dough as cash.
Here’s what happens when we invest in the stock market. Everyone notices the crashes. Social media, the news on television and the printed press. It’s all doom and gloom. But no one talks about when the times are good, so we miss them. Concentrate on the good times and when the bad times come just know it is a cycle that will pass.
So next time you are told the stock market is risky, then know that yes, it is – it goes up and down but if you invest wisely and take advise from those that really know, the chances are you will be perfectly fine.
Hitesh Mohanlal & WOW! Advisors are not licenced financial planners and this article is general in nature. You should obtain specific advice from a financial planner before you decide to invest in the stock market.
