From the outset it is important that I point out that this article will not appeal to everyone.
It will however appeal to most people who are passively involved in the share market.
By passively I mean they have exposure to share market movements but don't actively manage their portfolios.
These passive investors are more likely to own managed funds rather than direct equities.
The past 3 years has been extra ordinary times.
From the share market high at the beginning of November 2007 (Australian share market) to the low on March 10, 2009 we saw the markets plummet ~55%! This is the largest drop since the 1987 'crash'.
Many people saw their retirement savings 'evaporate', 'dissipate' or 'disappear'.
Well, this is what the main stream media would have you believe with headings like 'Blood Bath on Wall St' or 'Financial Armageddon' splashed across mainstream newspapers, announced via the radio or on the TV.
With this kind of information being continuously forced down your throat it will lead to panic, mass hysteria and ultimately irrational decision making.
There is another train of thought but first it requires education.
Having this will enable you to remain cool, calm and collected even during the toughest of conditions.
Australian companies generally share a proportion of their profits with owners (shareholders).
This done through a 'dividend payment'.
Across the Aussie share market this works out to be ~4-5% of the share price.
E.
g.
When the share market (ASX200) was at 4,000 a managed fund with a value of $10,000 would produce a dividend of ~ $450, a few years later the index is now at 5,500 so the dividend now received would be $619 (and portfolio worth $13,750).
Herein lies the key.
The dividend income stream has grown.
Your income stream based on the original investment now provides a return of 6.
19%! Although the share market dropped 55% from the high to low we saw dividend income only drop ~20-25%.
This provided an excellent opportunity for investors with a long term time frame as they could tap into a dividend yield of ~8%.
But what about capital movement/prices? I believe these are not of primary concern.
Dividend income is because this is what you want to eventually live off.
We know the share market is going to go up and down but overall it goes up more than it goes down (well to date it has).
WW1, the Great Depression, WW2, Stock Market Crash in '87 and Tech Crash all appeared to be (or were reported as) of devastating significance at the time.
But guess what? Looking at the big picture they are small blips on a upward pointing trendline.
Why get caught up in it all?! Focus on the income stream being created/received.
But can't I lose all my money? Not by investing in the right companies.
These are the managed funds that invest in blue chip Australian companies.
The big Banks, Woolworths, BHP, Westfield, Wesfarmers, Telstra...
for you to lose you money these companies have to go bankrupt.
If this was to happen we have bigger issues at hand (i.
e.
the Australian economy has completely collapsed).
Ignore what the media is trying to tell you most of the time - they are there to sell papers, attract listeners or viewers.
Having this mindset will remove fear and allow you to enjoy the things in life you should be!
It will however appeal to most people who are passively involved in the share market.
By passively I mean they have exposure to share market movements but don't actively manage their portfolios.
These passive investors are more likely to own managed funds rather than direct equities.
The past 3 years has been extra ordinary times.
From the share market high at the beginning of November 2007 (Australian share market) to the low on March 10, 2009 we saw the markets plummet ~55%! This is the largest drop since the 1987 'crash'.
Many people saw their retirement savings 'evaporate', 'dissipate' or 'disappear'.
Well, this is what the main stream media would have you believe with headings like 'Blood Bath on Wall St' or 'Financial Armageddon' splashed across mainstream newspapers, announced via the radio or on the TV.
With this kind of information being continuously forced down your throat it will lead to panic, mass hysteria and ultimately irrational decision making.
There is another train of thought but first it requires education.
Having this will enable you to remain cool, calm and collected even during the toughest of conditions.
Australian companies generally share a proportion of their profits with owners (shareholders).
This done through a 'dividend payment'.
Across the Aussie share market this works out to be ~4-5% of the share price.
E.
g.
When the share market (ASX200) was at 4,000 a managed fund with a value of $10,000 would produce a dividend of ~ $450, a few years later the index is now at 5,500 so the dividend now received would be $619 (and portfolio worth $13,750).
Herein lies the key.
The dividend income stream has grown.
Your income stream based on the original investment now provides a return of 6.
19%! Although the share market dropped 55% from the high to low we saw dividend income only drop ~20-25%.
This provided an excellent opportunity for investors with a long term time frame as they could tap into a dividend yield of ~8%.
But what about capital movement/prices? I believe these are not of primary concern.
Dividend income is because this is what you want to eventually live off.
We know the share market is going to go up and down but overall it goes up more than it goes down (well to date it has).
WW1, the Great Depression, WW2, Stock Market Crash in '87 and Tech Crash all appeared to be (or were reported as) of devastating significance at the time.
But guess what? Looking at the big picture they are small blips on a upward pointing trendline.
Why get caught up in it all?! Focus on the income stream being created/received.
But can't I lose all my money? Not by investing in the right companies.
These are the managed funds that invest in blue chip Australian companies.
The big Banks, Woolworths, BHP, Westfield, Wesfarmers, Telstra...
for you to lose you money these companies have to go bankrupt.
If this was to happen we have bigger issues at hand (i.
e.
the Australian economy has completely collapsed).
Ignore what the media is trying to tell you most of the time - they are there to sell papers, attract listeners or viewers.
Having this mindset will remove fear and allow you to enjoy the things in life you should be!
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