Here’s why the Aussie sharemarket is on the nose
ELEVEN years is a long time for any investor, but not long enough if you are hoping to profit from some capital growth in Aussie shares. It’s no wonder investors are frustrated.
MY annual November whinge about the sharemarket is starting to sound like a broken record.
But considering that vinyl is back in vogue, and that sinking share prices are worrying investors everywhere, it’s worth turning up the volume to 11 once more.
What the hell is wrong with it?!!
This isn’t about October’s big plunge. The frustration goes way back.
It’s now 11 years since Aussie shares last hit a record high, back in November 1, 2007, and they’re still below that mark — laughing in the face investors who trusted the old saying that sharemarkets always rise over the long term.
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Eleven years is more than long term, and our sharemarket still must climb another 16 per cent just get back to where it was.
Compare us with key overseas share markets over the past 11 years and it’s not a pretty picture:
• US share values are up 77 per cent, driven by surging growth at tech giants such as Apple, Netflix, and Google’s parent, Alphabet.
• British shares are up 13 per cent, not a strong as America but still stronger than us despite their Brexit battles.
• Germany’s sharemarket is up 46 per cent.
• Closer to home, New Zealand’s key sharemarket index has doubled in value.
Share analysts often say that a market index — such as the All Ordinaries that tracks 500 stocks, or analysts’ preferred S & P/ASX 200 index — should not be compared directly with offshore markets because Aussie stocks pay larger dividends than overseas companies.
Instead we should look at total returns, including dividend income, they say.
While that’s a reasonable argument, it’s no consolation for Aussie retirees who spend their dividends rather than reinvest them, or younger investors who borrowed money to buy shares and use dividends to pay their interest bills.
And we don’t measure house price growth in Australia by adding the rental income produced by each property.
Whingeing aside, nobody expects Aussie shares to reclaim their record high any time soon, so investors must try to act strategically and positively.
• Rethink popular strategies such as home equity investment loans and margin loans if your sole goal is capital growth. (I’ve had both - Not. Happy Jan.)
• Retirees living off dividend income can take solace that dividend payouts are still solid and unlikely to fall sharply even if the market weakens further. They held up well during the GFC.
• Diversify beyond Aussie shares. Traditional blue chips such as the banks, AMP and Telstra have been among the most disappointing in recent years and are a key reason for the overall weakness. Spread your risk by investing in international shares, property and other assets in a range of countries.
• Don’t be put off property investment by talk of an Aussie real estate crash. Property markets are cyclical, and it’s always a good time to buy one some states’ cycles.
• Try to reinvest at least some dividends. That’s why superannuation returns have done strongly — because we are forced to pump investment income back into buying more investments, which harnesses the power of compound interest.