Motley Fool Australia

3 reasons to buy ASX shares

Retirement, wealth building and having a safety net are three reasons to buy ASX shares.

Why you aren’t investing

Many people — including myself — have told me that investing is “too hard”, “the market is about to crash” or “I don’t have enough money”.

Let’s debunk these three myths.

“It’s too hard.”

It’s not. You can buy an ‘index fund’ which simply follows the overall stock market up and down. For example, the Vanguard Australian Shares Index Fund tracks the top 300 shares on the Australian market by buying each of them and holding on. You can buy into the fund using any stock broking account.

For example, if you invest $500 in the ETF version of the fund — found on Google Finance as V300AEQ ETF UNITS (ASX: VAS) — Vanguard will take your $500 and spread it across all 300 companies. You just hit “buy”. That’s all.

The fund is up 11.47% per year over the past five years.

“The market is about to crash” or “The market has crashed”

Is the market really about to crash?

It’s true that the share market crashes on average every seven to 10 years. By ‘crash’, I mean a fall of more than 20% without an immediate recovery. However, the bull market of the 90’s extended more than 10 years. Others lasted four years — or less.

So no-one really knows.

If you are just starting out, investing a small amount of money, you have the luxury of time on your side. Since 1970, the internet crushed old style businesses, Australia went to war, we’ve experienced recessions, 18% interest rates and much more. Yet, $10,000 invested in the Aussie share market would today be worth $855,000, according to Vanguard.

So when someone says, “The market is about to crash”. You can reply, “and?”

“I don’t have enough money”

An ideal saving — and investing — rate is more than 15% of your take home pay. If you cannot manage that, start with 2% of savings. Then, 3% next month. Then, 4%…and so on.

All you need is $500 to get started in the sharemarket. You can then set up a bpay to regularly transfer money into your brokerage account until you are ready to buy again.

Alternatively, take a look at the Acorns app. It allows you to invest your loose change in index funds.

Another alternative is to shop around for a new super fund. Some super funds allow you to pick and choose which ASX shares your money is invested in. Pretty neat, huh?

Why you shouldn’t invest in ASX shares

As I wrote here, don’t buy ASX shares if:

  • You’re addicted to credit cards. Pay them off first. You’re guaranteed to make a return equal to the credit card’s interest rate.
  • You don’t have time. Don’t buy ASX shares directly if you don’t have time to do your own research or follow someone else’s. Let someone else do it for you by investing through ETFs or managed funds.
  • You don’t have a budget. Making a budget is free and simple. Just log into your online banking or scan your bank statements to tally up all of your expenses. This is important because the ideal minimum amount of savings is three months’ worth of living expenses. It is a lot of money, I know. But the last thing you want to do is invest in the sharemarket, then be forced to sell your shares to meet living expenses.

Why you should buy ASX shares

Finally, you should buy ASX shares if you are worried about funding your retirement, you want to build wealth by investing in the place that has proven be the best over the long-term or you want a safety net. A safety net comes from making your money work for you. Over time, your safety net could earn more than you do!

Foolish Takeaway

There are always plenty of reasons not to invest. And there are genuine reasons why you shouldn’t. But for almost all Australians the ASX will prove be the best place to park your money for the long run.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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