Starting Out in Shares the ASX Way. Коллектив авторов
exposure to property using much less capital if you invest through a property trust (there is more on property trusts later in this chapter).
Investments often involve transaction costs when you buy or sell, as well as ongoing costs of ownership, and these must be taken into account when comparing asset classes. Transaction costs for direct sharemarket investments include brokerage payable to your stockbroker plus GST. There is no stamp duty payable on share transactions and there are no ongoing costs for direct sharemarket investments.
For other investments, transaction costs may include government charges, real estate agent commissions, entry and exit fees for managed funds and bank charges. Ongoing costs may include building maintenance, rates and letting agent fees, fund management fees and account fees.
The time frame required for your investment to perform is also an important consideration – some investments are better for long-term goals and others are more suited to short-term goals. The key determinants are the time left until the particular investment reaches maturity (the point at which you will be able to sell it) and/or the time required for it to perform to the desired standards.
Generally, shares do not have a maturity date and can exist for as long as the company is in operation. This means you can invest by taking a long-term view on performance. On the other hand, you can also take a short-term view. Day-traders aim to have opened a position and closed it out within the day, hence the name.
Property is generally considered as more of a long-term investment.
Two further considerations when determining the time frame you are prepared to accept for your investment to perform are the time it takes to invest and market timing.
Time it takes to invest
While ease of investment has already been discussed, the time it takes to be able to invest is also an important consideration. It takes time to learn to invest effectively – that is, time to learn about your investment alternatives, time to make investment decisions and time to manage your investments thereafter. Many people feel it is easier to invest in areas such as the cash market or managed funds than in areas such as property and the sharemarket.
Depending on the amount of time you have and your level of interest, you can:
• make all your sharemarket investment decisions by yourself
• rely more on the advice of your stockbroker
• make an indirect investment through a reputable fund manager.
The same applies to property – you can either research and decide on specific properties directly, or invest indirectly via listed or unlisted property trusts.
Of course, investment decisions become easier as you gain experience and learn more about the factors affecting your investment.
Timing
The timing of your investment in a particular asset class is also something to consider. Timing is particularly important when deciding when to buy or sell an investment in markets that have poor liquidity (a relative lack of buyers and sellers), as this characteristic tends to produce large price swings. Timing is also important for investors pursuing short-term investment returns or wanting to lock in capital gains. However, as most share investors are in the market for the medium to long term, the issue is not so much one of market timing as it is of their willingness to let time pass.
The companies listed on the ASX include a number of large overseas-based companies. More than two-thirds of the listed companies are industrial, which includes businesses such as banking and retail. The remainder are part of the resource sector, which includes mining and exploration. Many listed companies are household names – for example, BHP Billiton, Westpac, Woolworths, Telstra and the Commonwealth Bank.
As an alternative, managed funds are popular because they provide investors with a cost-effective way to spread (diversify) their investment throughout local and overseas sharemarkets, as well as over other asset types, such as property and cash.
Another possibility is the growing range of exchange-traded products, including exchange traded funds (ETFs), which can give you quick exposure to a range of diverse assets with relatively low management fees. We talk about these more in chapter 10.
As well as internal diversification, another factor to take into account is which asset classes enable you to spread your investments over different levels of debt. The movements of interest rates paid and charged by banks have an effect on us all. For instance, if your bank increases its interest rates, the repayments on your mortgage are also likely to increase. Like most individuals, companies listed on the sharemarket have debts that need to be serviced. These debts, like a mortgage, are susceptible to movements in interest rates charged by the lender.
Direct property investment may offer fewer opportunities for internal diversification and spread of debt levels due to the amount of capital needed for each investment.
Taxation can influence returns on investments significantly so it is an important consideration. However, don’t let it be the sole determinant when making your investment decisions.
This section looks at the characteristics of the different asset classes. After cash, fixed-interest investments and property, the potential benefits and drawbacks of share investment are discussed in greater depth.
Cash
The features of cash include:
• it usually provides the highest liquidity with the lowest risk
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