Australian shares have taken a solid tumble in recent weeks but unless you particularly need the money, it’s not a cue to sell up.
The leading Australian sharemarket index, the ASX 200, on Friday (10 October) was down to about 5,210.
That’s down from about 5,625 at the end of August – though still above (just) the index value of 5,190 at the start of the year.
Though nothing to be too happy about, the current market reversal is not a cause for panic.
Seasoned investors know that sharemarkets have, historically, always recovered from dips – often reaching new highs over time.
The key bit of information you need to know is, over the last 100 years, the Australian sharemarket has averaged a return of around 10 percent per annum.
That’s more than inflation, and at that level, you will grow wealth over time if you remain invested. Over the shorter term however, you can see your capital shrink.
Market highs and lows, often referred as ‘volatility’, are a natural part of sharemarket behaviour.
Individual share prices can also be quite volatile regardless of broader market movements, and that’s because when you invest in shares you are buying into a business.
No enterprise experiences consistently rising revenues and profits and an improving business market year after year.
Just like households, businesses face a variety of challenges on a daily, monthly and annual basis and these can be reflected in share price movements.
That’s why it’s so important to consider the nature of the business you are buying into as part of the stock selection process.
It’s always worth looking for companies with good management, a viable long term market (especially in our rapidly evolving digital age) and a clear plan for generating growth.
If you’re looking to invest in shares that represent prosperous, well run companies – something I recommend, the current sharemarket dip can represent a good buying opportunity.
Meanwhile, the next big thing on the sharemarket radar is the upcoming float of Medibank Private.
Previous government floats, of Commonwealth Bank and CSL, have proved bonanzas for investors, which Telstra’s long term share price performance has been disappointing.
The government-owned health care fund is being listed on the sharemarket in December 2014.
If you’re interested, be sure to read the prospectus (available later this month) to learn more about the quality of the company’s management and board of directors and its plans to streamline the organisation as it moves from being a government body to a publicly listed company.
For additional information, take a look at www.medibankprivateshareoffer.com.au or speak with your financial adviser or broker.
This article was written by Paul Clitheroe on October 13 2014. Source: http://www.ipac.com.au/paul-clitheroe-market-dip-no-cause-for-alarm