A year ago, I made my first foray into sharemarket investing, along with a million or so other younger Aussies who also dipped a toe in the water for the first time during the pandemic.
Of course, most Australians of working age already own shares indirectly via our superannuation nest eggs. But the ultra-low interest rates available on savings have more recently driven a new generation to seek out higher returns on riskier asset classes.
And boy, has it been some ride.
I’ve so far invested solely in so-called exchange-traded funds (ETFs) linked to broad market indices, such as the S&P/ASX200 – the top 200 companies on the Australian Securities Exchange – and global shares.
I can’t tell you which ETFs because that could be misconstrued as financial advice. When it comes to investing, you must always do your research and seek your own individual professional advice, where appropriate, before making any decisions.
After a year of investing, I’ve come to believe the hardest thing about share investing is not so much the act itself – picking a broker, signing up and placing an order for shares; once you get the hang of it, fairly straightforward. The real decision is whether you should be investing in the first place.
Before anyone invests directly in shares, it is important to consider the myriad alternative uses for your money.
Do you have any high-interest consumer debt you would be better paying off first? Do you have an emergency fund of disposable savings you can deploy to cover three to six months of living expenses, should you need it?
Do you need your money to be at your disposal in the short to mid-term to fund any other goals, such as a deposit on a first home, buying a new car, funding a wedding or doing major home renovations?
Are you making the most of the tax concessions available on contributions to your superannuation, provided you don’t mind not seeing that money again until you’re in your sixties?
I have the confidence to invest because I know I have planned, in my household budget, for all large regular bills and expenses. I also have a fully funded emergency fund worth six months of basic living expenses sitting in cash.
At the end of each month, I calculate my monthly budget surplus and know exactly how much surplus funds I have to deploy into investing, if I choose.
I am also regularly maxing out my allowable tax-concessional contributions to super, and I already have saved and put down a deposit to buy my home.
I’ve considered the potential role of leverage (borrowing to invest) in my strategy and decided what I’m comfortable with. And I’ve considered alternative investments to shares, such as property, and examined how both sit within my overall investment strategy and risk tolerance.
Crucially, I know I really don’t want to touch the money I invest for at least 15 years, and only then if I decide I want to retire a little earlier than 60 and can access my super.
So, how am I doing?
‘I know that, over the long term, shares have delivered an ‘equity premium’ to investors for the riskier deployment of their savings.′
Well, at the end a year of investing, the value of my portfolio is sitting slightly in the red.
My Australian investments have just about broken even, with dividend income (pre-tax) offsetting a small decline in the value of my total portfolio since purchase (remember my purchases have been spread throughout the year, so recently I have been buying when share values have been lower).
My international investments are sitting more firmly in the red, amid rising inflation and the rotation out of ‘growth’ stocks such as technology, which the Aussie market is less concentrated in.
There’s been a war. There’s been supply chain issues. There’s been a radical re-assessment of the likely path of future interest rate rises to deal with.
I’ve gone from checking my balance multiple times a day (rookie error) to checking it maybe a couple of times a week.
Amid all the heightened volatility, the past couple of months have felt like something of a ‘blooding’. I’ve watched the paper value of my investments fall, and I’ve held the line, continuing to follow my strategy and invest my surpluses.
I know that, over the long term, shares have historically delivered an ‘equity premium’ to compensate investors for the riskier deployment of their savings. It’s common to quote the long-term annual return on shares, including dividends, at about 8 per cent.
But, as they say, past performance is no guide to future performance. We know it is entirely normal and expected for some years to produce negative returns. I’ve come to accept it is entirely possible we are presently in for a period of prolonged below-average returns.
However, so long as there’s value to be created via the process of companies combining the inputs of labour and capital to produce goods and services, there should be returns to be had from becoming a part-owner in those companies, both by earning dividends and settling in for the long term.
I do worry about younger investors who may have invested with too short a time horizon and are at risk of selling out at the bottom of the market and missing any upside.
I welcome a day when money in the bank earns more than negligible interest again. That process is now underway, and it’s one that will ultimately lead to greater stability down the line. And that can only be a good thing for long-term investors, such as myself.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Jessica Irvine is author of the new book Money with Jess: Your Ultimate Guide to Household Budgeting. You can follow more of Jess’ money adventures on Instagram @moneywithjess and sign up to receive her weekly email newsletter.