What are listed investments?
Listed investments are investments quoted on an exchange established for trading investment-class assets: in Australia, equities principally trade on the Australian Stock Exchange (ASX).
Stock exchanges are also located overseas and corporate equities are able to be bought and sold through these sharemarkets. Such investments facilitate trading ownership of any publicly listed company via the purchase and sale of shares.
Shares in companies, listed property trusts and listed investment companies are the three main types of listed investments in Australia.
Why invest in listed investments?
These investments provide you with many value-added benefits. These benefits include:
- Liquidity,
- Tax effective income,
- Access to floats (initial public offerings),
- Long-term growth in dividend income,
- Long-term increases in share prices, and
- (In Australia at least) An investment environment regulated by the Australian Securities & Investments Commission (ASIC).
Listed investments can be expected to offer higher returns than bank deposits over the long-term. However, they can be highly volatile in the short-term and it is important that investors are aware that their capital value will fluctuate during longer periods of ownership.
Should an investment portfolio be diversified?
In establishing a portfolio of listed investments, you can diversify your investment risk exposure by combining shares, listed property trusts and investment companies. By using these three investment types you reduce potential risk as well as increasing the potential return of the investment. (Listed investment companies and property trusts offer you access to investments that you may not be able to access on your own – because of the high capital requirement that operates as a ‘barrier to entry’ otherwise). Listed property trusts offer access to a portfolio of property assets; and listed investment companies offer access to a large number of listed securities (equities).
Some listed investments are tax effective, serving to decrease your taxation liability. A percentage of the income received from listed property trusts may be either tax-free or tax-deferred. Certain dividends paid by companies have tax credits attached to them known as imputation credits that reduce the tax payable on your income.
Some of these investments are high yielding. They generally pay high levels of income as dividends, but may not provide much capital growth. (In these cases the franking level of the dividends should also be considered.) Other listed investments may provide you with the potential for greater capital growth. These investments are known as growth stocks and provide investors with a relatively small amount of income as the companies re-invest their profits rather than distribute them as dividends.
When constructing a portfolio of listed investments it is critical that you establish your overall objectives before selecting individual investment funds. Consultation with your financial adviser (or a stockbroker?) during this stage is recommended.
What are the key issues to consider?
When considering your investment portfolio there are many crucial details to focus on: these include –
- Focus on income, not the short-term changes in capital value of your investment portfolio. Dividend income tends to be relatively stable and should grow over the long-term.
- Where appropriate, invest into the market in stages using dollar cost averaging.
- Distinguish between core and non-core investments. Core investments include investments into leading companies with an extended history of proven returns. Non-core investments should make up only a small amount of your investment portfolio: sometimes referred to as ‘satellites’, these investments are usually added to balance some investment risk or to ‘spice up’ a portfolio.
- Understand your risk profile and decide on the level of risk you are willing to undertake to increase potential returns.
- Focus on the long-term and only invest in listed investments if you have a time horizon greater than five years.
Review your portfolio on a regular basis to ensure that it continues to meet your investment goals.
Continuum Financial Planners can help…
Including listed investments in your portfolio is a way of bringing the liquidity risk under control: they can usually be sold and settled within fewer days than can happen with direct investments that are not listed on one of the exchanges. To ensure your investment portfolio is adequately diversified to reduce investment risks, phone our office (on 07-34213456) or use the contact us form on our website, to make an appointment with one of our experienced financial advisers:
‘we listen, we understand; and we have solutions’ that we deliver through personalised, professional wealth management advice.
We acknowledge the resources of Securitor Financial Group Limited in drafting the majority of the detail in the above article: it has been extracted from the Support Information to advice documents.
(Originally posted in January 2010, this article has occasionally been updated and refreshed, most recently in January, 2019.)
