The ASX share market is an excellent tool for growing our wealth. It has been a good time to be an investor – over the last 12 months, the S&P/ASX 200 Index (ASX: XJO) has risen by 15%. Dividend payments have been on top of that return.
After such a strong run, Aussies may be curious about whether now is the time to invest or if we should be patient.
Investors can choose from a variety of options on the ASX, such as individual companies, real estate investment trusts (REITs), exchange-traded funds (ETFs), listed investment companies (LICs) and so on.
Let's consider the first question of whether the stock market is safe at the moment.
Is the ASX share market safe?
The share market is not a term deposit – it experiences changes in capital value every day as buyers and sellers transact.
We must keep in mind that for there to be the possibility of share prices to rise, there must also be the potential for the share price to fall as well. Accepting volatility is part of the entry price to own shares.
So, the ASX share market could fall tomorrow, next week, next month or any other time.
For gains to be possible, we need to be willing to take on some risk.
Of course, there are times when risks are elevated. If the ASX share market jumps in a short amount of time without a corresponding rise in earnings, there is a higher risk that the stock market is edging closer towards being overvalued. The valuation itself can be a risk if it becomes too frothy.
Wait until 2025?
Yes, there are some upcoming risks that could rock the market. Investors are thinking about the US election and, separately, the danger of a local or global recession.
But there are always dangers. Let's look back over the past 15 years.
In the last two or three years, high interest rates and high inflation were the issue.
Before that, we had global supply chain issues, the COVID-19 pandemic and lockdowns.
The world was affected by trade wars and tariffs before COVID-19, as well as the worries over Brexit.
At the start of the 2010s, there was a debt crisis in Europe and a real worry that another GFC would occur.
Then there was the GFC.
And so on.
There is always something to worry about. Yet, as the saying goes, the share market has managed to keep climbing "up a wall of worry".
I'm not suggesting we should buy any asset at any price. However, good businesses should be able to grow their profit over time and justify higher share prices.
That's why an ASX-listed ETF investment like Vanguard MSCI Index International Shares ETF (ASX: VGS) can be so effective because of the diversification on offer. Spreading the risk across multiple businesses and sectors is usually a good idea.
I'm looking to keep investing in the ASX share market in the coming weeks; I believe there are always opportunities.
