If you live in Australia you may have noticed that the Australian stocks market ASX has experienced quite substantial growth in the last decade. The first 8 years the Australian market boomed like no other market.
This boom sparked attention of many investors who attempted to start their own investing.
Why people invest in the market? The main reason in most developed western countries is saving for retirement. People no longer rely on their government to provide them with a paycheck fat enough to live off of it. In recent days it became a necessity to start saving for your own future.
If you started investing in Australia during the boom or even worse you invested in 2007 or even 2008 you may have suffered significant losses as the market crashed in 2008.
(ASX 10 year chart. It is possible to beat the market even during crisis if a proper strategy is used. Courtesy ASX charting at www.asx.com.au)
If you didn’t get scared to death during the market crash, you could take advantage of declining markets and since 2009 you could participate on a market recovery.
This volatility and price swings can be mitigated (if not eliminated) by a proper strategy an investor can use in his portfolio. This is why I believe in dividend investing.
A proper strategy? Dividend growth investing
Some people disagree and believe in growth stocks. I believe in dividend investing. Dividends contributed to almost 50% of market returns (Vitaliy N. Katsenelson, The Little Book of Sideways Markets, p.33) over the 100+ year history.
It is not just the income you can get while holding your stock. And one would say “while waiting for a stock recovery”. But the dividend investing strategy can offer you a few more nice benefits.
It is an income which is you primary goal and not stocks value or current pricing. With dividend stocks I do not care what the today’s or tomorrow’s price of the stock is, but I care what income the stock provides me with. I also didn’t care what my portfolio lost in value in 2008 as long as my stream of income was intact.
It is a magnified compounding which would help you to mitigate declines such in the ASX index you could experience in 2008. You not only invest your regular contributions, but also reinvest your collected dividends. This doubles your compounding power and recovers your account faster.
It is cost averaging which would help you. Would you average down on volatile stocks of small caps where you never know what would happen with a company ten years from now? Or would you average down on large behemoths who were around for last 100 years, paid dividend for half of their lifespan and were increasing dividends for 40 consecutive years? In order to avoid catching a falling knife I would chose the latter company.
It is a simplified analysis which dividends can offer to you. It is a lot easier to find out whether a company is properly valued, undervalued or overvalued. The dividend yield will tell you.
It is an achievable growth which dividends can offer. Are you expecting 15% or 20% growth from your company every year? A dividend company which pays you 3%, 4% or even 6% in dividends only needs to grow 12%, 11%, 9% or 17%, 16%, and 14% respectively to reach your goal.
It is an ever growing income which the dividend growth strategy can offer. Even if you stop investing and reinvesting your dividends during your retirement, and even if the market, like ASX, drops and erases all its gains, your income will continue growing. Yes, if you started investing in 2004 and your account suffered heavy losses, your income was still coming in and growing.
Time and proven strategies are your friends. You can use them in any market. You do not have to be scared anymore. And today it is a lot easier to start buying shares than ever before. You can use computer and trade online.
How to buy Australian shares online?
If you are a new investor the process is easy. In Australia you need to open a regular checking account which you will link with your brokerage account in order to buy stocks in Australian market. Opening an account with a broking company is easy, but selecting a proper one may be tricky.
When I was opening my broking account I was looking for the following benefits or features a broker can offer. All are in no particular order as I consider them equally significant and try to balance them:
Excellent client services & support
I always try to contact the broker prior to opening an account. I call them, chat with them, and send emails with bunch of questions about investments available, platforms, margin, options trading, etc., and watch how the broker’s rep answers the questions and how fast they are. Responsiveness is very important to me.
Try to find out what education the broker offers. How easy it is to use it and what information they provide to you. What tools you will have available and how easy it will be for you to trade shares.
Ease of use
If you cannot access a demo account to see what platform the broker offers and how easy it is to use it, just go ahead and open an account. Play with it and if you do not like it you can always close it or leave it. The broker will later close the account for dormancy. Just make sure they don’t charge any fees for dormant accounts. If so, then it is better to close it.
Brokerage fees are a very important part of investing. They can eat up your profits quickly. Pay attention to fees each broker charges. Compare them and read well all materials about fees they provide. Always try to calculate what your account will cost you annually or monthly for each broker when you add up all their fees together. Never compare just bare fees for trades only as some brokers may have additional fees. Use a client support if you are not sure about fees or do not understand them. It will also help you in assessing how communicative the broker is.
Over the last four years the brokerage fees in Australia dropped by whopping 22% (source: Canstar) and you can find a few low fee broking firms in Australia. Take advantage of this trend.
Take your part in recent recovery
Start investing, buy Australian shares online. It is easy than you may have thought. By applying the defensive but powerful strategies, you will be able to make nice profits and beat the market.
(ASX 5 year chart. Were you scared by the last decline that you missed the recovery? Courtesy ASX charting at www.asx.com.au)
Continue learning how to choose the best strategy for your portfolio. You can chose from many investment vehicles such as individual dividend stocks, managed funds, option strategies, or self-managed super funds (SMSF) to build your retirement account. It is possible even during falling markets.
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