I was talking to a close friend of mine recently about the benefits of different asset classes. My promotion of the share market was met with a revolted expression on my friend’s face, as if he had just eaten a rotten egg. My friend’s fear and cynicism towards the share market meant that he did not even consider the share market as an investing option. His attitude towards the share market was akin to a Zebra’s opinion of a lion.
But what exactly is my friend missing out on?
My friend’s fear has stemmed from his uncle’s experience of losing money from a bad share investment. Yes, it is possible to lose money in shares if you do not invest correctly. However, If you educate yourself, follow the proven strategies, and be tenacious with your strategy implementation you can absolutely earn well through the share market.
According to the Australian Securities Exchange (ASX), Australian shares were the highest returning asset class over the past ten years. The return on the All Ordinaries (top 500 companies) over this period was 9.2% per annum. How does this compare to your current interest rate?
Shares are quick and easy. From executing a purchase or sale of your shares, the money will be transferred after three days. The swiftness of shares is a benefit that other asset classes such as fixed term interest or property just cannot offer.
My friend then said, shares may be liquid but they are still intangible. You cannot feel your shares like you can with the walls of your property. Yes, shares are intangible but remember investments are meant to make money, not to be touched or seen. The intangible nature of shares mean that they do not deteriorate over time like tangible assets do. Also, shares are legal contracts and therefore are enforced by the law; they are absolutely real.
Dividend Imputation – Shares are Tax Friendly
When you buy shares, you become a partial owner of that company. Any distributable profits that the company makes are rightfully yours. Therefore, the tax that the company pays on its profits is also paid on your behalf. Depending on your marginal tax rate, you may be able to claim this company tax back. In essence this extra return, called dividend imputation, is a bonus on top of the dividend that was originally paid.
My friend’s reaction to this point was to claim that the tax system is so complex and impossible to understand that investing in shares is simply too hard to manage. Dividend imputation is a powerful benefit of shares and while it adds complexity it is not too hard. The ATO automatically tracks dividend imputation and pre-includes this in your online tax return forms.
It is easy to be pessimistic about the share market. After all, it does take some effort to educate yourself in order to invest effectively. But just ask yourself what the opportunity cost is by not investing in the share market. You could put your money under your pillow and it will sit there safely. Or, you could make your money work harder by investing in the share market which has proven to be superior. You can get a better return. You can afford that dream holiday. You can achieve your dreams. All you have to do is make it happen. If you want your money to work hard for you then start learning how to earn today.