Investment strategies: why I’ve sold out of all my shares

After more than 25 years of investing directly in the stock market, this shareholder has sold the lot. But there may be a comeback.

Shares are important for investors, but ownership strategies change. Picture: iStock

I love the idea of investing in stock markets.

To be able to buy slices of your favourite brands and businesses, then share in their growth, is a sign of a healthy society that rewards people willing to take calculated financial risks to build their wealth.

I’ve personally owned parts of many of Australia’s biggest companies over the past quarter of a century, plus a few global giants including Apple.

Until now.

Recently I sold my last directly-owned stock. It was iron ore giant Fortescue, and fortunately it was good timing, before the company’s 15 per cent share price slide in the past couple of weeks.

But timing and foresight were not my reason for selling out of shares. It was purely long-term strategy, and something many shareholders may consider at some point.

Not because they want to, but because it makes financial sense.

Many seniors are better off owning shares through super. Picture: Brendon Thorne/Bloomberg

Australia’s tax and superannuation rules can be complex, but also hugely rewarding for those who use the rules to their advantage.

Here’s why I no longer own a single stock.

TAX

Selling shares for a profit creates a tax bill for a typical individual. Our capital gains tax rules means half the profit gets added to a person’s taxable income for the financial year in which the share is sold (or all of the profit if the asset is owned for less than 12 months).

Selling a big lump of shares at once may push some investors into higher tax brackets, where they could lose up to 23.5 per cent of their gain – or 47 per cent for short-term shareholdings.

However, there is a way to avoid these capital gains, especially for people getting closer to retirement: superannuation.

SUPER BENEFITS

The key reasons I’ve stopped owning directly shares is because much of my super is invested in shares, largely through index funds, and because I’m getting older.

Several super funds today offer direct share investments, while self-managed super funds often invest in individual shares.

The great benefit of owning shares within super is generally when people retire after age 60 and switch their money from super’s accumulation phase to its account based pension phase, capital gains tax is no longer payable.

Also there is no tax payable on share dividend income in an account-based pension, and the franking credits that many shares generate get refunded to account based pensions – boosting returns even more.

These tax benefits make it worthwhile for retirees to own shares within their superannuation, rather than outside super where they will pay normal tax rates. It’s why SMSFs are popular among wealthier Aussies, and why I’ll consider buying shares in super in the coming years.

TIME AND TIMING

Real estate investors employ property managers to look after their assets. Share investors with significant holdings use stockbrokers, but for many people share ownership is a do-it-yourself process.

This can be tricky and time-consuming. Some people love this. Others want to use their spare time for other pursuits.

Timing is vital, too, given the nature of tax and super. You won’t want to sell an entire profitable portfolio in just one year as the CGT bill could be unnecessarily huge.

Every shareholder should have a strategy. Know why you are investor, have an idea of when you plan to sell, and understand that holding onto anything forever is increasingly unlikely given our changing corporate world, tax and superannuation rules.

Originally published as Investment strategies: why I’ve sold out of all my shares