Investing isn’t just for company executives and those with wealth. People invest everyday. Some are buying shares in a company, launching a new business or hiring a new employee. They are putting their money and effort, taking a risk, to see their investment grow.
Each and every investment is going to be different for each person. Even the importance behind it is going to differ. Investing is all about knowing yourself, sound judgment, being prepared to be wrong and willing to go outside the square.
No matter the risk or investment, or whether you keep an investment for one day or 10 years, there are still several myths floating around the investment sector.
1. When I Buy Shares I am an “Investor”
Yes and no, not in the true sense. If you were to invest into a start up business, then I would say you are an investor. You put in money to help buy the supplies and products you are an investor. You plan on holding on to your investment for years.
When you buy shares of BHP, Woolworths, Santos or Telstra you are buying into the secondary market. In these cases, you are not giving the founders money to help them run the business. You are buying and selling on the stock exchange. Trading goes on between strangers, people who bought the stock from someone else. You are just horse trading a piece of paper that shows you have a stake in the company. You might own it for a day or for a couple of years. Generally, you don't have hardly any say in the running of the business.
2. Bonds are Safe Investments
It may have been the case in times past, but not now. In many ways, bonds behave in similar ways as shares during the holding period. Now, if you hold on to them for the full holding period, assuming there is no default, you would receive par value for the bond.
The questions of whether you are an investor or not will depend on: Did you buy the bond at a premium and will you be holding it until it matures?
3. Find a Few Good Blue Chip Shares and Hold on to Them
Buy and hold typically offers a reasonable annual return. Even with an average annual returns, it is provides a reasonable return on investment. But in order to realise the return, you must have the intestinal fortitude to hang on to them for long periods some of which are long term downturns. Most people cannot tolerate that.
If you're feeling a bit overwhelmed, don't worry! I'm here if you have any questions, call us or send me us an email, and we are happy to help you.
Remember there is no substitute for sound personal advice!