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Getting rich: the basics
Step 1 - Borrow to investBORROWING to invest is the key to serious wealth accumulation, whether it be through investment property or geared shares.
That’s simply because it increases your exposure to investment markets (bringing market risk) but also more rewards (sharemarkets have always gone up in the long term). How much risk you take should be in proportion to how secure your income flow is and economic conditions.
Step 2 - Choose shares wisely
The best companies listed on the sharemarket are currently growing and paying dividends at around 17 per cent a year.
It makes sense to borrow when interest rates are 7 per cent to invest in, say, the banks. While some choices like BHP are obvious for the long term, most investors are not good at picking stocks and do well to take advice of stockbrokers or professionals, such as by investing in listed investment companies such as Argo, Australian Foundation Investment, Milton Corp or unlisted managed investment funds (which carry higher fees and have tax traps).
Step 3 - Think quality and long term
Successful long-term investing is about buying quality assets that pay income, which is the key to its value as a stock and wealth creation.
Share prices might go up or down and even occasionally ‘crash’, but the best companies still make profits and pay dividends.
With investments, look forward to prospects, not to past performance, consider the merits of the investment not the tax breaks. diversify your holdings and keep an eye on the economy at home and abroad (China is currently a major factor in investment horizons now)
Step 4 - Time your run
It makes sense to buy blue chip shares when the market dips, when shares are going cheap. Investors soon get the hang of the market's boom and bust cycles - but are often slow to take advantage of opportunities because they focus on the falling share price and don’t take a long term view of the value of a company.
Investors are more inclined to buy shares in a bull market when prices are high, as they don't want to miss out, but this is often the worst time to buy.
Step 5 - Tax deductible borrowing
Tax deductible borrowing against your home, shares or other investment allows you to build wealth while reducing your overall tax bill.
Australian share investments often pay imputation credits for tax already paid at the company level; 12 months’ interest can be paid in advance. This is a good way to offset one-off income that could push your overall tax rate up; and borrowing against an existing portfolio unlocks cash without creating a capital gains tax (CGT) liability.
Successful long-term investing is about buying quality assets that pay income, which is the key to its value as a stock and wealth creation.
Share prices might go up or down and even occasionally ‘crash’, but the best companies still make profits and pay dividends.
With investments, look forward to prospects, not to past performance, consider the merits of the investment not the tax breaks. diversify your holdings and keep an eye on the economy at home and abroad (China is currently a major factor in investment horizons now)
Step 4 - Time your run
It makes sense to buy blue chip shares when the market dips, when shares are going cheap. Investors soon get the hang of the market's boom and bust cycles - but are often slow to take advantage of opportunities because they focus on the falling share price and don’t take a long term view of the value of a company.
Investors are more inclined to buy shares in a bull market when prices are high, as they don't want to miss out, but this is often the worst time to buy.
Step 5 - Tax deductible borrowing
Tax deductible borrowing against your home, shares or other investment allows you to build wealth while reducing your overall tax bill.
Australian share investments often pay imputation credits for tax already paid at the company level; 12 months’ interest can be paid in advance. This is a good way to offset one-off income that could push your overall tax rate up; and borrowing against an existing portfolio unlocks cash without creating a capital gains tax (CGT) liability.
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