4 March 2013

Thinking of the bigger picture

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Thinking of th bigger pictureFrom the moment you wake in the morning, you begin to interact with major companies listed on world stock exchanges.

 

You might get out of bed to a Sony alarm, eat Kellogg’s Corn Flakes bought from a local Woolworths or Coles, check your messages on an Apple iPhone courtesy of Telstra or Optus, drive to work in a Toyota, do the banking with one of the Big Four and so on until you go to sleep again. In fact, throughout the day, your consumer choices contribute to the profits of many companies.

 

Have you ever wondered what it would be like to get some of this money back? Well, you can when you become a shareholder of a profitable company.  When you invest in shares, you buy a part of a company. As a result you may enjoy some of these profits to which you have contributed through a dividend payment. However, not all companies pay dividends nor are dividends guaranteed to remain the same or to grow.

 

Sometimes, rather than pay dividends, a company retains the profits to build the business. This expenditure can also lead to returns on your investment in the form of a capital gain over time. Of course, the companies mentioned here are only illustrative of how they interact with your everyday life rather than recommendations to buy.

 

Many everyday companies are not traded on the Australian Securities Exchange (ASX). Indeed, the ASX only represents two per cent of global equities. 2 If you want to invest in such global stocks that are not listed on the ASX, such as Apple or Sony, then the simplest way to achieve this is through a managed fund. With Australian companies, you can either buy shares directly on the ASX or indirectly via a managed fund. Local shares offer the added benefit of franking credits. 3 If a company you invest in has paid tax on its income, you can offset an amount of this against your own tax liability. When your marginal tax rate is below the company tax rate, you will get a credit and for those in retirement and not earning an assessable income, it could even lead to a cash refund.

 

4While shares are often viewed as risky, it’s worth keeping in mind that a listed company is a tangible organisation with real assets. Indeed, buying shares can make it worthwhile getting up in the morning or at least being part of the bigger picture.

 

 

1 Australian Stock Exchange, no date for last update, viewed 11 December 2012-http://www.asx.com.au/products/about-shares.htm

2 Shane Oliver, Eureka Report, 28 November 2005, viewed 11 December 2012 http://www.eurekareport.com.au/article/2005/11/28/australian-shares-vs-world

3 ASX course The Risks and Benefits of Shares, last viewed 11 December 2012 http://www.asx.com.au/courses/shares/course_03/index.html?shares_course_03

4 Australian Taxation Office, last modified 28 June 2012, viewed 11 December 2012, http://www.ato.gov.au/content/8651.htm

The author is an employee of Verante Financial Planning in Castle Hill, Corporate Authorised Representative of Magnitude Group Limited, Licence No 221557, Magnitude Group Limited ABN 54 086 266 202.

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