Stock market tips

JD: Hello, Kaye Fallick, the publisher of Your Life Choices.

KF: Howdy John.

JD: Well, it’s time to talk money first up.

KF: Well, we felt we needed a dose of common sense. So, we’re very lucky to have John on the phone. And John, the first question, of course, is what are the main things pre-retirees need to think about when they create a share portfolio?

J: Well, Kaye, the sensible thing, of course, is to follow the old rule of thumb. And that is, you split your assets into two. You have growth assets like shares. And you’ve got defensive assets like term deposits and the rule of thumb is that your age. So, if you’re 70, you should have 70 percent in defensive assets. If you’re 80, you should have 80 percent. And you always need a few growth assets, because we’re all living a bit longer, but predominantly you need them in defensive assets, because if something happens like what’s happened over the last month and the stock market crashes by 30 odd percent, you don’t want your wealth to be reduced by 30 percent.

So, you might not earn as much on term deposits as you can sometimes in the share market. But your term deposits are guaranteed by the government, so you know you’re going to get your money back.

KF: So, there’s some form of security resident in that asset.

J: Yes. And so, the term is called asset allocation. And for young people, somebody who’s 30, they can afford to have 70 percent of their assets in growth assets, you know like tech stocks and Apple stocks and stuff like that. Whereas an older person, if there’s a crash, you lose your money. Where the young guy, somebody in their 30s, is probably going to be working for another 40 or 50 years.

So, there’s plenty of time to recover. If the stock market does crash.

JD: John Cowling is the CEO of Australian Shareholders Association. John, I can recall back in 87, I guess I was in my 30s or something, and that terrible crash at the time. And I told my stock broker, sell everything and I got pennies on the dollar where in fact, I should not have panicked.

J: Absolutely. And in fact, one of the issues that we face is that as older folks, and I’m in my 70s. As older folks we’ve got to protect our wealth. So, we need, as I said, to have more money in defensive assets. And our grandchildren, they’ve got to be thinking about growth assets. And so, a stock market correction, just like we’ve had, is a great time to think about buying some shares.

KF: Yes, it’s an opportunity within the crisis.

So, if you had, say, fifty thousand dollars to invest in stocks, not asking you to name specific companies, but what kind of stocks would you be looking at?

J: There’re two answers to this question. The first question is, if you’ve got $50,000, you don’t want to put it all in the market tomorrow because the market’s only gone down 30 percent. Did a little bit of a bounce this morning, but in the GFC, it went down 50 percent.

JD: And no one rings a bell, John, when it’s at the bottom, do they?

J: No, they certainly don’t.

KF: They should.

J: Yeah, quite right. What’s the best thing to do, is to take your time and invest your $50,000, possibly once a month invest 20 percent. If I had $50,000 spare to invest. I’d think about buying $10,000 worth of stocks today. And then wait a month. And if it gets worse, that’s all right, I can buy it even cheaper – the next $10,000 worth. If it’s going up – well, that’s fine, too. So, I would take five or six months to invest the money. I wouldn’t plonk it all in the market straight away.

KF: That’s really helpful.

J: That’s the first bit of the answer. The second bit, you know, I told you there were two bits. The second bit is, I think in this day and age, even for young people, but especially for us older folks – we want dividends. So, you want to invest in companies that have got a strong dividend record. And there’s plenty – the banks and CSL and BHP. All these major, major companies, they’re unlikely to go broke.

JD: They can weather the current storm.

J: Correct. Correct. And the guy, it’s a little penny dreadful. And the small tech companies or biotech companies that have borrowed money. I wouldn’t touch those at the present time because who knows where that’s going.

KF: So, are you favoring, for retirees, are you favoring dividends over capital growth?

J: There’s no capital growth. We’ve just seen. If anybody’s got shares in your listeners, they would have seen 30 percent fall in the value.

KF: But that will come back. There will be capital growth.

J: It will come back over time. And one thing that one should never do is panic. As you know, there’s two types of money. Smart money and dumb money. And dumb money just follows the market out when it’s at the bottom and follows the market in when it’s at the top. And I’m sure your listeners don’t want to be part of the dumb money. They’ve got to be part of the smart money.

So, what’s the smart money doing? Well, the richest man in the world, Warren Buffett,

he hasn’t been spending his money. He’s been saving his money over the last couple of years. And he’s sitting on billions and billions of dollars waiting for what has just happened. So, he can go in now, when the market’s down and buy stocks at half the price they used to be.

JD: Well, like Kerry Packer used to say, you know, “Buy low -Sell high”

J: Exactly. And don’t lose money.

KF: So, John, we’re putting links on our website to Australian Shareholders we’ll encourage our listeners to have a look at what you’ve got on show.

JD: And John, before you go, one sentence as CEO of Australian Shareholders Association, what’s the one bit of sage advice that John Cowling would like to impart?

J: Well, we’d like to help members become better investors. And one of the best ways to become a better investor is to come and talk to our members at our regular meetings and learn from their experience.

JD: John, thank you so much for giving up your time today. We do appreciate your sage advice.

J: Thank you very much.

And reminder that Your Life Choices does not hold an Australian Financial Services license and all content and discussion is of a general nature only.