Shares are stretching people’s patience in eight-year drought

AN unhappy anniversary for the sharemarket passed this month, but your best bet may be to stay the course and wait for that elusive market rebound.

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IT pays to be patient, we are told, but this is getting ridiculous.

This month marks the eight-year anniversary of the Australian share market’s most recent record high, set in November 2007 before the Global Financial Crisis. Frustrated investors are still waiting to get back there.

This could become the slowest recovery from a sharemarket downturn that Australia has seen. Worse than the 1970s collapse and worse than the Great Depression.

Some investors (like this writer) have developed a nervous eye-twitch just thinking about it.

The All Ordinaries index, which measures the value of 500 major companies, last peaked in November 2007 at 6873 points. In the past week it was around 5250 points, still 24 per cent below that record.

To reclaim its 2007 record high, the All Ords needs to climb by more than 30 per cent, and with share analysts not expecting boom times in the next year or two it’s likely we’re heading for more than a decade in the doldrums.

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During the Great Depression Aussie shares took 37 months to recover from their low point to a new record high. In the 1970s it was 94 months, and we’re already 81 months since the bottom of the GFC.

Many investors’ patience is wearing thin, especially when you consider that Australia hasn’t had a recession for 25 years while markets in Britain, the US and Germany have recently hit fresh highs.

Fund managers prefer to quote the All Ordinaries Accumulation index, which adds dividend income to capital growth and already has eclipsed its pre-GFC highs.

But that’s no consolation for recent retirees who live off their income rather than reinvest it, or younger investors who embraced the borrow-to-invest mantra in the mid-2000s and use their dividend income to pay their loan interest, just like property investors do.

Super fund members, who typically have about a quarter of their nest egg invested in Aussies’ shares, have fared better because their investment income is automatically reinvested.

Despite the frustration, it still pays to be patient with shares. Here’s why.

DIVIDENDS: Aussie shares pay higher dividends than other countries and they come with groovy tax benefits. They also tend to rise faster than inflation as company profits naturally grow. Annual dividend income paid by the All Ords companies at the moment is about 4.6 per cent, or 6.6 per cent once you include the tax credits — double what you get from bank interest.

POOR ALTERNATIVES: Cash in the bank is the safest place to put your money because it comes with a government guarantee, but you’re going to get paid diddly-squat. After tax and the effects of inflation, money sitting in a bank savings account today is actually going backwards. Bonds pay not much more, while property these days is only for those with deep pockets.

MURPHY’S LAW: If you sell out now after hanging tight for almost a decade, Murphy’s Law says markets will boom. And that would make you sad if you missed out.

William Shakespeare once wrote: “How poor are they that have not patience”. Aussie investors with plenty of patience may feel poorer than they did eight years ago, but experts say a good strategy is to stick with shares.