Shares still best for the long term
SHARE markets around the world are having another turbulent week which has led to the usual flood of calls asking whether it's time to move to the perceived safety of cash.
While this may be a good strategy for anybody who is particularly nervous, it is well proven that nobody in history has been able to consistently and accurately forecast market movements. Of course, plenty have tried but they have usually sold too late or waited too long to get back into the market after they did sell.
Having been an investor for more than fifty years, I am still convinced that shares are the best long term investment. No other asset class offers the ability to sell in a few hours, and to buy and sell in small parcels. Also, Australian shares paying franked dividends offer special tax advantages.
However, the unique liquidity of shares means that their prices will tend to bounce around. This is why you should never invest in shares unless you have a seven to ten year timeframe in mind and have a mindset that is prepared to hang in there when the going gets tough.
Investors also need to understand the concept of relative attractiveness. This means how attractive one investment is compared to another. There is no doubt that interest rates are on the way down and could even fall by a full one per cent between now and the end of the year.
Even though interest rates may be dropping, most of our strong companies will be maintaining or even increasing their dividends even though their prices may be temporarily dropping. Every time interest rates drop quality shares paying franked dividends get relatively more attractive than leaving money in the bank.
Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org.