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What do you want?
“Only buy something that you'd be perfectly happy to hold if the market shut
down for 10 years.” Warren Buffett
There are a number of things you should consider before you make that first
trade. These are your ultimate goals, your appetite for risk and your
timeframe.
1. Do you want growth or income?
If you are looking for growth (capital gain) you should look for securities
that are likely to increase in price over
time. If you want income from your investment, you need to look for securities
that pay a regular income.
2. What risks are you prepared to take?
The risks in securities investing are closely linked to the uncertainties that
exist around businesses and their
profitability, now and in the future. Some businesses, especially those with
established customers and steady profits
from year to year, involve less risk than others, although returns tend to be
lower as well.
3. What is your timeframe?
From August 1998 to August 2008 there were periods where the NZSX All Index on
the New Zealand Stock Exchange dropped
as well as periods where it increased. However, the index has grown overall.
The message is to invest long term and
live with volatility. You increase your risk of loss with shorter investment
timeframes.
NZSX All Index - Growth over 10 years*
Figures as at August 2008, despite volatile market conditions.
August 1998 : 1,272 points
August 2003 : 2,238 points : 76% growth over 5
years
August 2008 : 3,340 points : 49% growth over 5
years
: 163% growth over 10 years
*Includes 2008 drop of 19.29% within the index
Source: New Zealand Exchange (NZX)
>> Part 3: Dividend Yields
<< Part 1: Your investment decisions
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