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Questions New Investors Should Ask
Added: (Tue Jun 24 2008)
Investing in shares can be an exhilarating or terrifying experience as you watch the share market soar and tumble in turn. New investors need to ask themselves three pertinent questions before they start investing. Firstly, what is the time frame of this investment? It can be as short as two years or as long as ten - or anything in between. The time frame you choose will to a great extent dictate the type of shares you buy. But before you can decide that, ask yourself how averse to risk you are. Do you enjoy the thrill of getting a higher income with more risk, or would you prefer to stay within your comfort levels with less return for less risk. The third question is would you choose to have capital gains or dividend payments. The answers to all of these questions will influence your choice of shares.
If you prefer less risk and less gain, then Blue Chip shares are for you. These are solid shares with little risk of tumbling to the bottom of the cliff - or graph - during hard times. The dividend they pay and their capital growth are both steady, though not as much as the riskier shares. But they are considered to be the most stable of shares. Income shares are shares that attract those investors who do not want to actually sell their shares to make income from them. They pay dividends and tend to grow more slowly than others.
Growth shares usually pay no dividends; as these are invested back into the business for growth. Instead they yield a higher capital growth for their investors. The technology and mining sector are examples of growth shares. Cyclical shares rise and fall with the tide of economy, while defensive shares do the opposite, performing in the same way whether the economy is on the rise or is falling.
Need investment ideas? Read more about managed funds and term deposits on the RaboPlus website (http://www.raboplus.com.au).