Just reading "Bearish bargains" article (dated 1st August 2008, which is five days away, making me feel as if I'm already in the future :) and confirming the belief that now is actually a good time to buy. Never mind the bad news around and gloomy forecast. That is the driving force of the markets.
I was never a fan of chasing the high growth numbers. Always preferred a lower but steadier income.
Current market data shows that different industries are down from 20% to 40% this year. The result is that price-earnings ratio (P/E) for Australian shares is at the lowest point in the past 12 years at 11.3 times. In comparison, the average ratio over the past 10 years is 15.2. This means that for $1 of earnings you would pay $11.3 now, while the average is $15.2.
In addition, the market is pretty low and the question is how low it can go. At times like this it is a good thing to jump from technical analysis to value analysis. While technical analysis mostly analyzes the price movement, value analysis involves underlying earnings. Which is another aspect of investing - income.
Compared to current, in some opinions high, returns from cash deposits at banks the income returns from shares are still doing better.
And, when the bull returns, it won't take long to reach the levels at which you purchased the shares. Actually, at times like this, picking individual shares is risky and I, as usual, prefer index funds.
High dividend stocks are defensive assets. The dividend prevents the stock price from falling too low. This is visible from the price fluctuation in two Vanguard index funds - Australian Shares vs. High-Yield Australian Shares. The High-Yield fund, which contains companies that pay high dividends, is down way less than the Australian Shares fund. The good thing about income fund is that it is also franked. This year the amount is 105%, meaning some of your other income could be offset this year in terms of tax payments.
I was never a fan of chasing the high growth numbers. Always preferred a lower but steadier income.
Current market data shows that different industries are down from 20% to 40% this year. The result is that price-earnings ratio (P/E) for Australian shares is at the lowest point in the past 12 years at 11.3 times. In comparison, the average ratio over the past 10 years is 15.2. This means that for $1 of earnings you would pay $11.3 now, while the average is $15.2.
In addition, the market is pretty low and the question is how low it can go. At times like this it is a good thing to jump from technical analysis to value analysis. While technical analysis mostly analyzes the price movement, value analysis involves underlying earnings. Which is another aspect of investing - income.
Compared to current, in some opinions high, returns from cash deposits at banks the income returns from shares are still doing better.
And, when the bull returns, it won't take long to reach the levels at which you purchased the shares. Actually, at times like this, picking individual shares is risky and I, as usual, prefer index funds.
High dividend stocks are defensive assets. The dividend prevents the stock price from falling too low. This is visible from the price fluctuation in two Vanguard index funds - Australian Shares vs. High-Yield Australian Shares. The High-Yield fund, which contains companies that pay high dividends, is down way less than the Australian Shares fund. The good thing about income fund is that it is also franked. This year the amount is 105%, meaning some of your other income could be offset this year in terms of tax payments.
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