Do you know of anyone that has been burned by the promise of quick money later in life? The lure of the big returns to set yourself up for retirement can capture anyone no matter how intelligent or financially aware.
Whilst investing in shares is a great way to build up long-term wealth, it also offers other benefits, including the ability to diversify. If you can build a portfolio of 20+ shares over time you should have no need to invest in risky get-rich-quick schemes to afford a comfortable retirement.
Investing in a range of shares across different industries will provide you with the protection of a diversified portfolio – if you do suffer the odd loss here and there you will not be permanently wiped out. Losses can also provide valuable learning opportunities allowing you to re calibrate your investment strategy as your knowledge grows.
Companies listed on the stock exchange must comply with listing rules and continuous disclosure requirements so you can expect a certain degree of transparency. This is not to say there will not be over-hyped IPO’s and private equity firms floating less than satisfactory companies – there will be. But there are also plenty of companies in Australia, New Zealand, and the rest of the world that have been listed for some time. For these companies, there will be a wealth of publicly available information on company operations and financial performance you can utilise to make your own assessment of company fundamentals.
Owning shares means you are a part owner of the companies you have shares in. If you have money in the bank it is essentially owned by the bank. In England, money deposited in a bank account is, as established under case law going back more than 200 years, legally the property of the bank, rather than the account holder. Whilst the Australian government guarantees bank deposits up to $250,000, there is currently no equivalent guarantee in New Zealand.
With money in the bank, you are restricted to the interest the bank is willing to pay you on your deposit, which is currently less than 3%. With share investing the most you can lose on any position is 100% but the winners can keep going well beyond a 100% gain.
History has shown that there are significant benefits to being an owner, rather than a lender (savings account) or borrower (credit card/loan). Good companies adapt and innovate. Changes in technology that reduce reliance on manual labour benefit shareholders as the costs of production are reduced, increasing profitability. As the nature of employment and the way we work continues to evolve, there is much to be said for investing in shares so that you, as a company owner, can benefit from these changes.
Owning shares is the best way to build long-term wealth. If you start investing early, diversify, and learn from your mistakes you can have a comfortable retirement without resorting to dangerous get-rich-quick schemes.