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Motley Fool Australia

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Why Do I Need a Share Broker?

If you want to buy shares, you’re going to need a share broker.

And who wouldn’t want to own shares, particularly Australian shares? Over the past 110 years, Australia has had the best performing share market in the world, posting the 7.5% after inflation returns per year.

Your long-term savings would have fared better in the share market than almost anywhere else, including property, gold, and certainly not in Matchbox cars.

But before you dive straight into buying shares in the latest newspaper tip, before you start getting up at 5am to follow the closing hours of Wall Street’s trading day, and before you run the numbers on a company’s cash flow, you should set some expectations.

No Better Home For Your Money

Here’s one good rule of thumb: If you’ve got money you won’t need for five years or longer, you should invest it in the share market.

Money earmarked for use in less than five years (such as for a deposit on a house, or a kid’s school fees) should be put in a high interest savings account, or a term deposit. And, heaven forbid, if you have high interest credit card debt, send all your extra cash directly to your bank and pay off that bill pronto!

But your long-term money belongs in shares. Why? It’s simple: Historically, there is nowhere you could have gotten a higher rate of return than in the share market.

Smashes, Crashes and Big Gains

Sure, there have been smashes and crashes over the years, including a big one in 1987 and another big one during the global financial crisis of 2007-8, but over time, the Australian share market has risen and risen, up 11% per annum over the past 30 years, 10% per annum over the past 20 years, and up 7.5%, after inflation, over the past 110 years.

Obviously, past performance is no guarantee of future performance. Share market crashes will occur again. The market can go down, as well as up, especially in the short-term. We could be in for a Japan-like lost couple of decades, although if that were to happen, we’d suggest an ailing share market might be the least of our problems.

Despite all the warnings, you can’t argue with the facts. Over the long-term — during bull markets, bear markets, depressions, recessions, and elections — the share market has been the place to be. And an online broker account will get you there.

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See all posts by Bruce Jackson
The Motley Fool