Going, going, gone: Why I’ve sold all of my shares
Sinking sharemarkets have created nervous investors wondering whether they should cut their exposure. I’ve just sold the lot, but the reason is not what you might think.
I’VE just got rid of my entire share portfolio. And it feels great.
After 15 years of owning shares in many of Australia’s largest and most successful companies, this month I said bye-bye to BHP, CBA, CSL, Westpac, Wesfarmers and many others. There were no survivors.
It’s not because I think Aussie share prices are about to sink down the toilet soon, even though many forecasters believe the chance of a fall is greater than the chance of a big rise.
And selling is not something every share investor should be doing.
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Shares remain a great long-term investment, and are paying dividend incomes two and three times higher than what you’ll get from bank deposits
Any major investment decision needs to have a good reason, or three. So here are mine.
1. BORROWED TIME
Most of my shares were bought using a popular investment strategy back in the mid-2000s: a home-equity loan.
Then came the Global Financial Crisis that sent Aussie shares plunging 55 per cent. After 11 years, my portfolio was still underwater because dividend income was paying loan interest rather than being reinvested. And, sadly, our market is still below where it was in 2007.
I hated the thought of another GFC, or even half a GFC, sending my investment debt deeper into the red.
2. HELLO SUPER
As we all get older, superannuation becomes much more attractive than owning shares outside of super. Many funds now allow members to buy individual shares inside their super, which is what I’ll do.
Tax savings is where super wins hands down. If you hold shares until retirement, you can avoid capital gains tax when you sell. If held outside of super, at least half of your capital gain gets added to your taxable income.
I have less than 15 years before I’m allowed to enjoy my super and sell its assets tax-free, so pouring spare cash into this nest egg is strategy number one.
Now, in a crazy turn of events, every time I hear that the market has dropped, I do a little fist pump. That’s because super invests in the sharemarket all the time, through ups and downs, and I’ve learned that bargain prices produce the largest long-term gains.
3. TAX THREATS
The Labor Party wants to increase the tax hit on investors if it wins government in next year’s election.
Its plan is the reduce the capital gains tax discount for assets held more than a year, from the current rate of 50 per cent to 25 per cent.
This means that every $100,000 of profit made from selling a long-term investment would add $75,000 to your taxable income in the year of sale, rather than $50,000 at present. Ouch.
Labor’s plan to scrap franking credit refunds for many retirees is another looming tax hit.
The polls are looking good for the Opposition, and not so good for investors. It’s another factor that has made selling all of my shares less painful than first thought.