Share Based Investments

The following introductory text has been taken from the Australian Stock Exchange web site. This is fairly basic and we will be adding regular up to date information to our site in the following months.

What are shares?

When you buy shares in a company, you are buying a part of that company. This means you share in the company's performance in the form of profits which can be given to you as dividends and/or capital growth through the value of your shares increasing.

The company you are investing in benefits by using your money and that of other investors to finance its business or its expansion, without having to borrow money.

Benefits of investing in shares

Outperforms other investments over the longer term

Although past performance is no indication of future performance, history suggests that Australian shares have outperformed other types of investment over the longer term. To find out more you can read the report (PDF 128KB*) by independent actuaries Towers Perrin comparing the performance of shares to other investments for the period ending December 2003.

Tax benefits

Where companies have already paid tax on their profits, tax credits known as franking credits may be attached to the dividends the company pays to you. These franking credits can be used to offset tax payable by you on other income. In addition, shares held for more than 12 months qualify for a 50% discount on any capital gains tax payable. Find out more about tax.

Diversification

Many people know the saying "don't put all your eggs in one basket". The Australian sharemarket helps you to do this by offering a wide choice of companies in which to invest. There are over 1700 companies listed on ASX. These companies are involved in a wide range of industries covering most sectors of the economy including financial services, industrials and healthcare. By investing in a range of companies you can spread your risk.

Flexibility

You can buy and sell shares quickly. You can sell shares and generally have access to your money in no more than three days. Other investments often take longer to sell and get your money back. This concept is known as liquidity. Remember some shares can be traded quicker than others due to their increased liquidity. (Liquid investments have the benefit of greater flexibility).

Control over your financial future

You can decide exactly how your money is invested, enabling you to have a lot of control over your finances. You can of course choose to share this responsibility with a stock broker who can advise you on what shares to buy and sell. For more detailed information tailored to your needs, click on the following web links -

Your Roadmap to Financial Independence

Unfortunately many people forego the planning required to prepare for retirement, often until it is too late. However, this needn’t be the case. Even if you are about to retire or you have already retired you can still apply these principles to get your investments working for you.

In a previous article I introduced you to the three laws of successful wealth creation that will enable you to build a solid foundation to ensure you provide a very sustainable income in retirement. In this article I want to address the first of these laws in more detail to show you how you can stop losing and start making money from your investments. If you remember, the first of the three laws to wealth creation was to ‘spend less than you earn’.

Throughout my career many people have asked me to show them how they can create wealth. In most cases they expect that I will give them the 'holy grail' of investing, the one thing that will make them millions. Instead, I ask them a simple question - ‘Do you have a budget?’ You know, that great wealth creation vehicle that many suggest you should have to help you become financially independent. If you are like most people, you probably think a budget will restrict your spending, hamper your lifestyle and generally make you miserable. However, none of this is true - a budget is simply a financial plan to succeed.

A budget lists your income and expenses, and lays the foundation as to how you either invest or spend your money. It allows you to have more freedom, more security and more wealth. Quite simply, it provides you with the flexibility to plan for the future, but more importantly take control of your life today and put you on the right path for your future.

It is usually this first rule that creates considerable angst amongst people. This is because most people do not have a budget. However, without a budget, how do you know how much you are actually spending, or more importantly how much you can save?

Usually it is not until people receive their group certificate at the end of the financial year that you hear the outcry ‘I got paid that much, what did I do with it all?’ Only when spending habits are quantified do we know how much we can save. I have never met anyone that could not save at least 10% of their income after completing a budget. Most people could in fact save 20% to 30% of their income and still maintain a good lifestyle.

If you begin to budget you will realise how much money is wasted through uncontrolled spending. Budgeting is like your roadmap to financial independence - it provides you with a plan of attack that allows you to create your preferred reality. The bottom line is a budget will allow you to allocate your income appropriately so that you stop losing and start making money. My advice to you is set some time aside to create a budget to quantify your spending so that you can begin to invest your income wisely.

Dale Gillham is the director and founder of Wealth Within, an Australian-based company specialising in share market education and independent investment advice. Dale is the author of the book ‘How to Beat the Managed Funds by 20% and Australia’s first and only accredited Diploma of Share Trading and Investment. For information visit www.wealthwithin.com.au