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Ups and downs of the share market

Ups and Downs in The Share Market

By Wealthyfrog  www.wealthyfrog.com.au

 

 

So far in 2008 we have seen a bumpy ride in the Australian Share Market, we saw the All Ordinaries fall for 12 consecutive days in the middle of January.  This downturn follows fears of the US going into recession and its impact on Australia.  

 

If you are a share investor it is highly likely that your portfolio would have taken a battering at this time.  What should you be doing with your portfolio?

 

1.  Don't Panic!  It is human nature to flee the market at the first sign of trouble - it's the fight or flight response.  Carefully consider your options and your objectives before you sell; when you sell any holdings you will potentially crystallise any capital gain or loss.  You also need to consider the costs involved such as brokerage fees and tax. If the market values of the holdings recover within your investment horizon there is the potential for further growth if you hold on to those investments.

It is quite easy to see the losses experienced in the market now, but forget the great run seen in the market over the last 5 or so years.  When we look at the returns of the All Ordinaries Index over the last 5 years we have seen the following growth;

  • 2007 - 14%
  • 2006 - 20%
  • 2005 - 16%
  • 2004 - 23%
  • 2003 - 11%

(Fat Prophets 22/01/08 Newsletter)

This has been a great run in the market!  But we need to accept the good with the bad, which is outlined in point 2. 

2.     Volatility comes part and parcel with investing in the share market. 

An article that was released by ?Invest Smart' on the 22/01/08 provides an illustration that shows how volatile the Australian share market has been over the last 10 years. 

 

 

 

Source: Macquarie Bank

(http://www.investsmart.com.au/my_newsletter/newsletter.asp?bulletinID=858)

 

The blue line represents the All Ordinaries - from day to day there are some large variances.  The red line is shows the All Ords to a rolling 10 year period, which averages out the growth over this period.  This graph shows that if you look at the share market over a longer period the growth rate appears to be consistent.  The green line shows the Bank Bill rates (cash rates).  From the 10 year period it shows that Australian share market as an average has consistently returned more than cash by approximately 5%. 

 

3.     Develop A Plan For Your Share Portfolio

Review your strategy behind your share portfolio; your end purpose for the shares, when you buy, when you sell, your level of diversification (across Australia and International stocks), your portion of blue chip stocks to speculative stocks, your dividend returns, your time frame, your buffers (in cash, line of credit and/or margin loan) and the portion of your share holding to other investments held in your portfolio.  This helps you to focus on your end goals without being distracted by the emotions that come with short-term volatility in the market.  


4.  Research

Do your research; read books and magazines, attend workshops and seminars to build your understanding of what is happening in the market so that you can make informed decisions.  Nobody can predict what will happen in the Australian market (or the international market for that matter), however increasing your knowledge of what is happening in the market can make you feel in control of your choices and weigh up the risks involved. 

 


This article provides general information only without taking into account a person's objectives, financial situation or goals.
Wealthyfrog are unusual in that they are completely unbiased and don't sell any investments or receive any commissions. Please contact Wealthyfrog for a complimentary session on 07 3514 7000 or visit our website on
www.wealthyfrog.com.au.