Crawling out of bed at 4.30 this morning to write my daily piece for Switzer Daily is always a bit more easier to take if the Dow Jones is in the green and not plummeting into the red. This morning the most talked about stock market index — the Dow Jones Industrial Average — was up 327 points (or 1.34%) and headlines were predictably telling me that “trade war fears were dissipating.” And it got me thinking about what stocks might do for the rest of the year.
Last night on my Money Talks program on the Sky Business Channel, I spoke to two market experts who didn’t argue with my view that stocks should rise for the rest of the year. Sure, neither said they will keep rising without some worrying drops, so anyone hoping to make money without any fear, loathing and anxiety should stick to term deposits where you’ll be lucky to get more than 3% for your ‘punt.’
However, stocks could be a place where the return might be as much as 14%, though 10% definitely looks doable if my experts — Gary Stone from Share Wealth Systems and June Bei Liu — are on the money.
How do those returns result?
Well, if you look at our most watched index for stocks — the S&P/ASX 200 index — it’s now at a level of 6280. If it makes the more difficult level of 7000 by champagne corking time on 31 December, then you’d make 11.4% via stock prices going higher and about 2.5% for half a year of dividends, which equals 13.9% — let’s round it up to 14%.
If I get less optimistic and say that the index gets to 6700, then that’s around a 10% return. But how does anyone access this potential return?
Nowadays there are products called exchange traded funds (ETFs) that make buying stocks really easy. These funds are sold on the stock exchange, which means you can get in and get out when you like.
Funds not on the stock market can be harder to get out of, especially if a market panic is on. Of course, a bad day for stocks could mean you get out at a silly price but that’s what happens when all stock players are rushing for the exit doors.
For the novice investor or the more cautious new market player, there are two ETFs that I’ve dealt with that give the investor the 200 stocks in the S&P/ASX 200 index. It means you’re invested in our top 200 companies and get paid a collective dividend from those companies with an ETF.
And if you worry that a surprise market crash could come along this year, at least you’re holding a quality group of companies that would have a high likelihood of rebounding after a crash. Phil Ruthven, founder of the research house IBISworld, told me in 2009, (just before the market started rising after the 2008 GFC crash) that our market has rebounded between 30-80% in any year following crashes!
Gary’s charts point to a solid rise in the index that powers these two ETFs with the ticker codes of IOZ or STW, justifying my predictions on possible returns. If you went to an online broker, you’d search for these codes just like you would if you wanted to invest in BHP, whose ticker code is, surprise, surprise — BHP. Yep CBA is CBA and I loved it when the stock exchange gave us SWTZ — (my nickname) for my ETF product called the Switzer Dividend Growth Fund.
But you might be saying, I’ve never invested in stocks before, so how does this help me? Well, I got one of my young workers to do a step-by-step experience of signing up to buy stocks with Nabtrade and I got him to chronicle each step. This is what he came up with:
• It’s free to set up an account.
• In about 10 minutes, you can start buying shares all over the world.
To create a nabtrade account you will need:
· Your basic contact details.
· A valid email address.
· A tax file number (you can set up an account without a TFN, but you’ll be slugged extra tax if you leave this out so it’s better to have this up front).
· A valid driver’s licence or passport.
1. Visit nabtrade.com.au/onboarding.
2. Select the account you want to open and click next. If you’re new to shares and are investing in your own name, it’s likely an ‘individual’ account.
3. Select ‘With a Cash Account’ on the next page then continue.
4. If you’re an existing NAB customer you can login with your Internet Banking details, otherwise you can create a new account from scratch.
5. Fill out the details and submit. You’ll be sent some temporary login details, which you will update the first time you log in.
It’s that easy.
1. Login at nabtrade.com.au and click ‘trade’ in the top right.
2. Enter the details of the company or fund you want to buy. For example, you could search ‘Switzer’ and select the option that appears.
3. Select ‘Buy’ as the action.
4. Under ‘Amount type’, select ‘Value’, then enter how much you want to invest.
5. Under ‘Order type’, select ‘Market’, and leave ‘Duration’ as ‘Good Till Cancelled’
6. Click ‘Review order’ to make sure you’re happy with the details.
7. Click ‘Submit’.
You’re now a fully-fledged share investor!
Overnight the dropping of trade war fears saw financial stocks spike and Goldman Sachs put out a note with a big, positive call for commodity prices, which is good news for our big miners BHP and RIO.
If the miners and our banks have a good second half of 2018, the S&P/ASX 200 index should also do well as these are big stocks in the index.
June Bei Liu thinks our index goes higher from here but she wasn’t as bullish as Gary. However it tells me that it might be an OK time to have a little flutter on stocks. I hope they’re right because my SWTZ, which tries to be a good income payer via dividends, tends to track IOZ and STW.
By the way, this isn’t financial advice, as I don’t know your individual situation, but I reckon it is pretty good financial education!
If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.