Many share markets around the world are hitting record highs after dropping sharply when COVID-19 first hit the global economy. Interest rates are also at record lows around the world, which is driving more investment money into share markets in search of higher returns.
2020 share market increases
World stock markets ended 2020 up by 13%, despite suffering significant falls when COVID-19 first hit early in the year. The table below shows how some of the world’s share market indices rebounded, including Australia’s ASX index.
|Index||2020 low point||End of 2020|
|ASX (Australia)||4,546||6,587 (an increase of 44%)|
|Dow Jones (US)||18,591||30,606 (an increase of 64%)|
|FTSE 100 (United Kingdom)||4,993||6,460 (an increase of 29%)|
|Nikkei 225 (Japan)||16,552||27,444 (an increase of 65%)|
Although the percentage increases in the table are high, it is important to understand that:
- these indices are averages of multiple company shares listed in each respective market. Individual shares within each of these markets could have risen or fallen by different percentages.
- the market indices fell significantly to reach their low point, so the increases were largely recovering lost ground. The table below shows how each index increased from January 1, 2020 through to December 31, 2020. Note that the increases are nowhere near as high as those in the top table.
|Index||January 1, 2020||December 31, 2020|
|ASX (Australia)||6,684||6,587 (a decrease of 1.5%)|
|Dow Jones (US)||28,438||30,606 (an increase of 7.6%)|
|FTSE 100 (United Kingdom)||7,542||6,460 (a decrease of 14.3%)|
|Nikkei 225 (Japan)||23,656||27,444 (an increase of 16%)|
So, is it a good time to buy shares?
The conventional wisdom in share market investing is to ‘buy low and sell high’. Many investors bought shares at low prices in 2020 after COVID-19 induced market crashes. But is it a good time to buy now that markets have rebounded?
Unfortunately, no one can accurately predict future share market movements. Shares should be viewed as long-term investments. To get the best returns, you should buy high quality returns and hold them for several years to ride out any short-term market fluctuations like those that happened in 2020.
Investing in the share market involves a degree of risk. Share prices can fall as well as rise. You can help to reduce your risk by investing in a range of shares (or in an index fund), rather than investing in one or only a few listed companies. If the value of some shares fall, this can potentially be offset by increases in the price of others.
Understanding your financial goals and risk profile
Before you make any investment, it is important to understand your short, medium and long-term goals. It is also important to understand your risk profile. For example, you might be prepared to accept a higher level of risk to generate potentially higher returns. If you are, you may be prepared to invest in some speculative shares as part of your portfolio.
How we can help
Our experienced team of financial advisors at Wilson Pateras in Richmond can help you to develop an investment strategy to match your risk profile and to achieve your financial goals.
Contact us today for a complimentary, obligation-free consultation to find out how we can help you!