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Conclusion
Let's now sum up the
main points raised in this handbook.
- Develop an investment
plan. Consider as many details pertaining to your
financial and personal situations as possible.
Taking the time to do so will pay dividends later.
- Consider whether your
portfolio should lean towards shares producing
strong capital growth or those producing regular
dividends. Those depending on their share
investments for an income should be looking for
regular dividends.
- Be aware that the
share market suffers severe slumps, as well as
rises. Extraordinary profits cannot be sustained
over a long period of time.
- Learn from history.
We know that the share market will suffer peaks and
troughs. Understanding when the market is likely to
rise or fall in the near future can help you
maximise your profits on the market. It can also
help you to decide where to re-direct your
investments when the market is performing poorly.
- The share market is
generally driven by greed and fear. A mob mentality
rules. If you possess the nerve, and your personal
finances allow, go against the crowd. It pays to buy
when everyone is selling, and sell when everyone is
buying.
- Learn how to identify
shares that are good value. Look beyond the share
price to a company's true value, the price to
earnings ratio. Generally, lower price to earnings
ratios are what to look for.
- If you are looking at
using the share market as a long-term investment
option, learn which companies have consistently
returned growth above the market average.
- Try to select a mix
of companies, including those in emerging sectors
that can be expected to increase in value over the
coming years. Most will be in the services sector,
Australia's major growth sector. Over time, these
stocks may provide greater profits than others, but
be aware that they are also a riskier proposition.
- If you are time poor,
to minimise your risks it pays to ensure that your
portfolio has shares from a wide range of sectors.
When one sector experiences a downturn, your
finances can be protected by those shares in better
performing sectors.
- Limit the number of
companies that you purchase shares in to a
manageable number. Make sure that you are able to
track what is happening to them, preferably on a
daily or weekly basis.
- Every few months,
take an objective overall look at your entire
portfolio. Perhaps sell poorly performing shares
that show little sign of improvement. Or those that
have reached a high price that you consider not to
be sustainable. Check how each industry sector is
performing and what their prospects are for the
foreseeable future.
- Think about the
benefit of using other people's money to make money
for you. When interest rates are low, this becomes a
very viable option. However, ensure that you have
sufficient alternative funds available if
circumstances demand.
- Spend less than you
earn. If you’re spending more than you earn, you
will never be able to become financially
independent.
- Save 10% of your net
income and invest it wisely. The level of your
income has no bearing on the level of wealth you
achieve, what is critical is the amount you save.
You should now know
something about the share market and about which
strategies to consider when purchasing shares. The next
step is to discuss your financial situation and strategy
preferences with a broker. The broker can then create a
portfolio which best suits your individual needs.
With a solid
understanding of the share market, you will get a lot
more out of your investments. On behalf of our team, we
wish you every success with your investing.
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