Stock Market

What are some investment strategies?

The most effective investment strategy for investors is to invest in companies which are undervalued, belonging to sectors which are doing well in the economy. Once these sectors have been identified the best way is to get help from a full service broker as they will be able to help you determine which stocks are in the best position in the market. Here at KOSEC the investment team meet with company management to get a better understanding of how these companies operate and will only look at companies with strong fundamentals, a proven track history and a solid management team behind them. Once sure about the investment decision the broker will contact the investor to place the trade when there is a good opportunity to enter the market. This approach is the most effectively as it utilizes the principles of value investing and technical analysis.

Another common strategy is to invest in blue chip (high capitalization) companies belonging to different sectors and holding for the long term which is often utilized by superannuation funds. This can provide returns but is normally obsolete compared to the above strategy. Even though diversification is achieved the investor’s portfolio will follow closely with the general performance of the market itself which is why gains can easily be wiped out in times of financial distress e.g. Global Financial Crisis. During these times we saw many investors incur huge losses in their superannuation funds because they used this strategy. This is why many investors look for full service brokers as they can provide professional advice and give a full portfolio review to help individuals make better investment decisions.

Shares become an even more attractive investment choice when tax benefits are taken into account. When an investor holds shares of a company who has already paid tax on their profits, franking credits may be attached to dividend payments the company gives you. Franking credits can be used to offset tax which is payable by the investor on other income earned. In addition, an investor who holds specific shares for a period longer than 12 months will qualify for a 50% discount on capital gains tax payable.

The stock market contains a wide array of companies specializing in many areas such as resources, manufacturing, financials, energy, etc. This allows the investor to diversify their risk which means their portfolio’s performance will not be dependant on the performance of one sector or company in particular. This allows the investor to not ‘put all their eggs in one basket’ and allows them to reduce the risk of potential losses by spreading risk across different sectors. With the aid of a full service broker they can help the investor tailor the most effective portfolio to maximize returns.

The stock market unlike many other asset classes has a very small start up cost. This allows just about any individual the access to the benefits of investing in the stock market which can help them in growing their wealth. Compare this to the property market where an individual will most likely have to get a mortgage where they are effectively borrowing money to purchase the asset, as well as paying many upfront costs. Investing in the stock market will usually only use the equity available to the investor unless they hold a margin loan.

Investing in shares gives you the flexibility of being highly liquid. Investors are able to quickly buy and sell their shares which can give them access to their money normally within three days. Other investments such as property can take many months to settle which may not be practical to the investor.

What is the stock market?

The stock market is the medium through which people buy and sell company shares. In Australia, these transactions take place on the Australian Stock Exchange (ASX) where buy and sell orders are electronically placed. Only companies which are listed on the ASX are able to be traded in this way. The stock market is where there is the greatest potential for growth for any investor looking to maximize returns and secure their financial future. With the right guidance and critical information this is well achievable for any investor.

How to invest in shares?

Shares are electronically placed on the ASX where buyers place bids for shares they want and sellers place offers for shares they are holding. There are many buyers and sellers in the stock market and a trade will occur for a particular company’s share when both the buyer and seller agree on one price. Once this happens, ownership of the share is passed on from the seller to the buyer and the new holder is subject to a percentage of all benefits of that particular company depending on how many shares they hold. Trading happens between 10am and 4pm every business day.

Source: ASX Presentation

What are the advantages of investing in the stock market?

The stock market can be the most effective vehicle in helping an investor achieve the greatest returns on their investment with minimal risk. There are a myriad of advantages which investors can benefit from when investing in the stock market.

Historically, Australian shares have far outperformed any other asset class making it the best option for investors in the long term. This has been the case since the 1900s!