Stock market will come good

YOUNGER investors should stick with stocks and not panic because of the market fall, says SCOTT PAPE

A man stops to look at the electronic share board at the Australian Stock Exchange (ASX) in Sydney, Monday, Aug. 24, 2015. The ASX 200 has dipped below 5100 points for the first time in 18 months, as the big banks continue to bear the brunt of fear selling and with the big miners also getting hit on continued weakness in commodity prices. (AAP Image/Dan Himbrechts) NO ARCHIVING

I’m a 24-year-old nurse. My superannuation is $19,000 (with HESTA), and I am worried about the share market. My boyfriend is into shares and says the crash this week is the start of something much bigger. Should I switch my investment from the current balanced option to something more defensive, like cash? Chloe

BAREFOOT SAYS: At your age your should have your super invested solely in growth assets, and you should stop listening to your boyfriend (and the media). If I were a talent manager for the stock market, I’d say it has an image problem: much like Mark Latham. The only time my client lands on the front page is when it’s up to no good. Yet when it rebounds, which hundreds of years of history proves it always does, the good news invariably gets buried in the back pages (like in my newspaper column).

 

IS ARGO THE WAY TO GO?

My wife and I read you religiously, so we know you’re a big fan of AFIC and Argo. Our question is this: we have $500,000 in our SMSF and we are wondering whether we should invest in AFIC and Argo, or directly in the companies they hold, using the “percentage of total assets” on their websites as a guide. Bruce and Mandy

BAREFOOT SAYS: Great question. There’s no doubt you’d be slightly better off replicating their portfolios. AFIC is currently trading at a premium to its net tangible assets (which means they’re making less than the individual shares in the portfolio are making). But if you’re patient, you could buy at a discount to NTA (making more than the individual shares). I’ve bought at both premium and discount throughout the many years I’ve been a shareholder with them, and it’s never bothered me too much. So let’s take a look at why I have my mother in AFIC and Argo shares. These listed investment companies (LICs) charge about 15c for each $100 you invest, which in your case would work out at about $750 a year. What do you get for that $750? First and foremost, professional investment management that has (historically) outperformed the market over many decades. Second, AFIC’s portfolio comprises 25 individual blue chip Aussie businesses; the company handles all the paperwork and the tax reporting on the individual holdings. That will save you a lot of time (or accountancy fees). Over to you.

 

FORTESCUE AN INVESTMENT ANCHOR

I have a dilemma. I own a couple of stocks (Fortescue and a gold company) that are doing really badly and dragging down my portfolio. But I don’t want to sell them as I’d lose a lot of money. What should I do? Annie

BAREFOOT SAYS: You’ve said you’re not selling, so what advice do you want? The truth is no one cares what price you bought the shares at. That’s history. All you can focus on is the future. Fortescue has too much debt for my liking, and I don’t invest in gold miners (though I feel I hedge that by buying my wife jewellery). Having said that, with resource prices currently in the toilet, I’ve got my eye on the big miners, though I’m buying them at about 50 per cent less than their boomtime valuations.

 

WHAT HAPPENED TO MY HOT TIP?

A few years ago I acted on a hot tip and bought some shares in ZYL Limited (a nasty little coal mining company). Now they’ve been removed from my CommSec account and I can’t figure out what’s happened. What can I do? Chelsea

 

BAREFOOT SAYS: Let’s get the bad news out of the way first — your hot tip’s gone cold, and ZYL’s gone broke. The administrator might scrape a few bucks from the carcass, but they won’t end up in your pocket. There are two things you should do. First, you could try selling your (worthless) shares to somebody who buys delisted and suspended companies (delisted.com.au is one). You’ll have to pay them a nominal amount ($150), but at least you’ll be able to claim your losses against other gains when you lodge your next tax return. Second, the next time somebody gives you a hot tip, tell them to talk to the hand.

 

SHOULD I BORROW INTO SHAREMARKET?

When I saw the front page of the newspaper earlier this week, “$59 billion panic attack”, all I wanted to do was buy some shares. The only problem was I didn’t have any spare cash to take advantage of it! I know your thoughts on debt, but is it a good idea to get a margin loan in place (but not draw it down), so I can be ready for the next downturn? Bill

BAREFOOT SAYS: Generally, I advise against borrowing to buy shares, because most people only do it when the share market is running hot and is due for a downturn (at which point
the margin lender forces you to either cough up some cash or sell your stocks at a loss). I also don’t like margin loans because they’re generally too expensive. A more cost-effective way is to redraw on your mortgage. But before you do anything you need to ask yourself: what happens if the market falls ­50 per cent from when I buy in? Instead, I’d focus on putting a set amount of your long-term savings into the market each month.

Originally published as Stock market will come good