Managing shares: What you need to know?

Retirement income stress has been greatly exacerbated by the volatility of share markets around the world. Today’s ‘Plain English’ guide to shares examines the key aspects of this asset class. Whether you are a long term shareholder or a potential new investor, it’s a handy refresher guide to what you need to know – without the usual financial jargon. We also share ways of further building your knowledge in investing in order to maximise your future income.

Why shares?

The majority of Australians are invested in shares, although some may be unaware of this.

Obviously those who invest directly with a broker are aware of their portfolios. But if you have a superannuation account, it is also highly likely your savings are invested in both international and local companies by the fund managers. You can check out how your savings are invested by viewing your super account settings.

It’s because you probably already ‘own’ shares that you’re likely subject to market fluctuations.

What does share ownership entail?

Shares are also called equities, stocks or securities. They are literally a small portion or ‘share’ in the ownership (hence equity) of a company. Owning a part of company allows you to benefit from the capital growth (value) of that company as well as some of the profits along the way in the form of dividends.

How do you view or review share investment?

Firstly, it is important to be clear about your reasons for investing (i.e. how this fits with your overall retirement income strategy), your goals for this type of investment (i.e. expectation of returns) and your risk tolerance. This tolerance is the way you respond to any ups and downs (movements which will almost inevitably occur) over the investment cycle. Many retirees also enjoy the benefits of share dividends, particularly those which are fully franked and thus the source of extra income over and above the dividend.

The above motivations are a complex mix of need, knowledge and emotions. At this stage you may wish to learn more about your specific achievable money goals and how they fit with your own particular risk profile.

Not all shares are alike

Investors are confronted with a bewildering array of listed companies, so it is helpful to consider your preferred sectors, established or emerging companies, if ethical investing is important and the best balance between capital growth and dividends.

Next step is to decide if you are interested in investing locally, internationally or both. The Australian Stock Exchange (ASX) has an excellent track record over the long haul – with an average of 10%+ return over the past 99 years. But many financial advisers believe that our stock market is somewhat restricted when it comes to innovative technology companies (e.g. Meta or Google) and retail behemoths (e.g. Amazon or Ikea). For this reason, some international shares may provide extra diversification for your portfolio. Seeking extra advice and support is a good idea if you are not an expert in this area.

Investment channels

If you are clear that investment in the stock market is the right move, you can do so in a few different ways. The following is not an exhaustive list, merely the four most common entry points for most Australian investors:

Direct investing

Online broking – an online trading account with DIY decision making, charging fees per transaction
Full-service broking – Broker will offer advice on buying and selling and charge a % fee per transaction

Indirect investing

Managed Funds – This gives entry to fund which aggregate similar investments, forming a ‘pooled investment’ which is invested across a range of companies by a professional fund manager. Fees can vary.
Exchange traded funds (ETFs) – buying into a parcel of shares that form an index, with brokerage payable per transaction

There are other ways to invest in shares and pros and cons attached to each different option. It’s important to consult an adviser if you are unsure which channel will best suit your needs.

Other considerations

Outside super, your direct investment in shares will be subject to taxation rules for private income and will require detailed reporting of all investments, dividends, dividend imputation, as well as purchases and sales. This is not for the feint-hearted. The good news about online brokers is the detailed reporting that most provide at the end of each financial year. But you will still need to comply with all Australian Tax Office (ATO) requirements.

Should you sell shares you may be required to pay Capital Gains Tax (CGT). This will depend upon the nature of your holding, how long you have held those shares and other variables.

Want to find out more?

Bearing in mind the caveat that the ASX is only one relatively small exchange, it does pack a punch when it comes to share market information, with a series of information packs, YouTube videos and even a tutorial so you can arm yourself with basic information, at no cost. Start with this introductory video or view the full range of information on offer here.

The government’s Moneysmart website is also very informative.

And daily newspapers are a rich source of company performance reports. If you make it your business to read the business pages regularly, you can’t help but become better informed on market movements and which sectors and organisations are doing well.

Could financial advice help?

Investing in shares involves a clear rationale, an understanding of risk and reasonable expectations of good returns over time. If you would like to chat to an adviser about your risk appetite and how shares might form part of a diversified asset holding, a one-hour consultation can be very helpful.

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This article is provided by Retirement Essentials Representative Number: 001260855.  We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859.  This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.