Recent reports in The West Australian have shown people nearing retirement are confused, with many planning to keep working beyond the “normal” retirement age of 65.
The state of confusion is hardly surprising, given the unique financial times we are in, and the mixed and often contradictory signals that emanate from various sources (who often are pushing their own barrow.)
Talking about mixed signals, let’s start with the stockmarket. Every night, commentators fill our television screens, with graphic accounts of how much the market has gone up, or down during that day. Even if nothing has happened, they still go to great lengths to make it graphic. But, then I guess that is the nature of television. A factual statement such as “nothing much happened on the market today”, - next story please - would hardly have viewers glued to their sets. After all, there are ratings to think about, aren’t there!
Also, and this is very important, there is virtually no mention about dividends (well, occasionally and begrudgingly, a little mention). However dividends don’t have the same graphic appeal as the daily gyrations of prices – even if the gyrations happen to be microscopic when viewed through a longer term lens.
This brings me to an important point. The stockmarket should be looked upon as a longer term investment – not a short term, get rich (or poor) trading casino. This gets lost in the day to day commentary, by those in the media who are trying to whip up excitement and turn the stockmarket into the latest, ratings enhancing, excitement machine.
In the longer term the daily price fluctuations (except in rare extreme events) fade into insignificance when compared to long term trends.
Finally, let’s return to dividends. Over the long term, dividends make up roughly half the stockmarket’s total return. On top of that, you can add in valuable tax credits, due to the imputation system. These can easily add between 1% and 2% to the yield
Two more things that are important in the current climate – dividends, when taken across the whole market, are fairly stable, with a gradual upward trend. Also, they provide a much higher yield than is available from areas such as bank term deposits.
