Your questions answered by an industry expert
Good time to buy shares
With the stock market down so much is it a good time to buy shares? I've never bought shares before and feel that things might get worse before they improve. I'm 25 and don't want to waste my money after doing exactly that since I left school and having worked full-time for the past three years. Is this the right time to start investing in shares?
I think you have overcome the first hurdle that stops most of us building up above-average wealth - changing your old, counterproductive habits!I think it is smart, if you can't afford to service a home loan, to look at buying shares. If you buy well, you can build up a deposit for a home later. Until this shocker of a year for shares, the stock market rose over 20% for four years. On average, if you have shares that really keep track with the overall stock market, you should average 12% or so. This means your money doubles every six years.
By the way, some people do better than this and so if you received 18%, your money would double every four years. Returns like these are hard to sustain and I prefer to work off 10-12% as a rule of thumb. Many people your age might borrow a little bit of money, which is tax deductible and this means you can access more shares and a bigger return.
Imagine if you had $20,000 saved up and you received 12% after tax then you'd have $40,000 after six years. If you borrow to have $40,000 worth of shares you'd double to $80,000, which could be a nice deposit for a house. If you let it roll in 12 years you'd have $160,000, in 18 years you have $320,000, in 24 years it's $640,000 and within 30 years it is $1.28m!
These are generalisations and many things can change the outcome for good or worse, but this is the principal for building wealth. A house's value, if it's a good property in a good area can produce similar compounding value outcomes.
I don't care how you do it but get as much money as you can comfortably afford into an investing plan of some kind.
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