Keeping a long-term view
If you hold shares, either directly or as part of a managed fund, you’ve probably heard reports regarding the recent share market correction. Share market volatility is a normal market occurrence and as long as you maintain a well-diversified portfolio and long-term view, there’s no reason for alarm.
Returns from both Australian and international shares have always been more volatile than some other asset classes in the short-term. That’s why shares should always be considered a long-term investment.
But over the long-term shares can produce significant capital gains through increases in share prices. In fact, although past performance is no indication of future performance, history suggests that Australian shares have outperformed other types of investment over the longer term.
Like it’s often said – the higher the volatility, the higher the potential returns.
Shares also have other advantages. Unlike property, shares provide a high level of liquidity, giving you ready access to your money. They also offer tax benefits as shares held for more than 12 months qualify for a 50% discount on any capital gains. Australian shares also issue imputation credits to investors, where companies have already paid tax on their profits. These credits can be used to offset the tax payable on your other income.
Most importantly Australian and international shares play an important role in ensuring your portfolio is diversified.
There are over 1,700 companies listed on ASX, involved in a wide range of industries and covering most sectors of the economy including financial services, industrials and healthcare. By investing in a range of companies you spread your risk.
It is important to remember that if you avoid growth assets like shares, you run the risk of earning less than inflation or not effectively diversifying your assets.
The best way to safeguard your portfolio against a market correction is to diversify across and within different asset classes. This gives you the added assurance that if something goes wrong, you won’t have all your eggs in one basket.
A professional financial adviser is best-placed to ensure your portfolio is well-diversified.
They can also provide advice on when to continue holding certain shares or products, and when to let go.
Often in times of uncertainty, investors can act irrationally based on their emotions and what others are doing around them. Advisers – professionals armed with technical knowledge – are removed from the situation, and can assist investors keep sight of their personal goals and long-term plan.
At RetireInvest we also have the support of in-house research and technical teams, who review products to ensure they remain appropriate based on the prevailing risks.
If you’re worried about any of your investments, it’s a good idea to talk to a professional financial adviser, who can help ensure you’ve got the right mix of assets to help you reach your long-term goals.