Australian equities (also called shares) are an investment that can help provide for the long-term growth of your wealth.
When you buy shares, you buy a part of a company. You can share in the profits of that company through its dividend payments. You may invest in shares directly or through a fund which invests in a portfolio.
Some of the key benefits of investing in equities are listed below.
Liquidity: Another plus for equities is their liquidity. While you may have to wait for the end of the term to redeem a term deposits (or risk paying a penalty) equities can usually be sold at any time.
High yields: While past performance is no indication of future performance, equities have been one of the best performing asset classes over the 10-year period to December 20111 and while there have been some rocky years since the global financial crisis, the Australian equity market has paid a consistent dividend yield averaging just under 5% a year over the past 40 years.. In 2012 Australian equities returned 20.26%3 compared with term deposit rates of just 4.15%4.
Tax advantages: In Australia, dividends are paid from company profits. Where an Australian company pays income tax on its taxable income, and then distribute its after-tax profits through franked dividends, franking credits arise for shareholders. As franking credits offset tax payable by an Australian taxpayer, you may be entitled to a refund of excess franking credits.
Equities are well worth considering now that term deposit rates are half their levels of August 20085. A 1% drop in the bank’s term deposit rate translates to a 16% fall in income on a $500,000 term deposit investment and 22% on $700,0006.
You should note that if inflation increases, the real return on your cash investments will decrease.
Investing in shares with a track record of delivering reliable earnings and distribution growth with a growing dividend yield, can play a vital role in your long-term wealth creation.
Because equities have the potential to offer greater long-term returns than other asset classes, they also carry higher risks which are important for investors to understand. Some of these risks include the risk of capital loss, volatility risk, timing risk and currency risk. It’s important to speak to your financial adviser about these before deciding to invest.
To learn more about how to build wealth or your investment options, speak to us Today on 02 9600 8600.
1 Russell Investments/Australian Securities Exchange, 2012, “Long-term investing report (June 2012)”. Returns are calculated after tax and net of costs.
2 Global Financial Data, AMP Capital
3 AMP Capital. As measured by S&P ASX 200, 1/1/12-31/12/12.
4 & 5 Reserve Bank of Australia, “Retail deposit and investment rates (December 2012)”. Based on averages of the five largest banks’ one-year $10,000 term deposit rates
6 AMP Capital; for illustrative purposes only
In uncertain markets, staying focused on your goals and ensuring your investments are working hard for you is more important than ever. For more information, speak to us on 1300 788 650.
