Quality Shares Beat Cash
Unless you have been living alone on a deserted island you would have to be aware of the financial crisis that has gripped the world. In Australia, the economy is still on the down hill run with a lot further to go. Recession is a possibility.
Whilst markets have fallen significantly however, does the value of your investment matter all that much if you are not intending to sell? (Obviously it will if the stock is a dog and the loss is likely to be permanent). Stockmarkets are forward looking and run well ahead of economies and it is a reasonable proposition that recovery here is not too far off.
The downturn continues to deter many people from investing now, fearful of further loss. But what is the alternative, cash? For the last 18 months or so, cash has been king. But look at the return on cash investments now. Instead of focusing on the possibility of capital loss, investors now should be focused on the income their money generates. When it comes to income now, share dividends are a far better proposition than a cash alternative, particularly after tax is considered. The share dividend advantage will be even greater as interest rates fall further this year, (a near certain proposition).
Effectively, you will finish up with more money in your pocket if you buy shares now (but not just any shares) than you will if you keep invested in cash. So what if the shares fall some more if you are getting your income. If you are prepared to ride out the volatility on share prices for awhile longer, investment in good dividend paying shares makes a lot of sense.
Ultimately buying companies with quality earnings, will see the prices of those shares rise, as it is the increase in dividends that will drive the share price upwards. As recovery sets in therefore you will pick up an increase in the value of your holdings and in the meantime receive better than cash returns.
So consider investing now. But be aware that not all shareholdings are the same. Look for those companies that pay good dividends and have growth prospects. Most importantly, get some professional advice.
POSTED: 14-Jan-2009