Residential property vs shares since 1926

The residential property versus shares debate is popular and can be as fiery as political and religious debates. So I’m often asked about comparisons of the long term returns.

Following is some commentary I came across from Dr Shane Oliver, Chief Economist and Head of Investment Strategy at AMP Capital Investments. (Emphasis added by me.)

After allowing for costs, residential investment property and shares generate similar long-term returns. This can be seen in the next chart, which shows an estimate of the long-term return from housing, shares, bonds and cash.

Over the long term, the returns from housing and shares tend to cycle around each other at similar levels. In fact, both have returned an average of 11.5% p.a. over the last 80 years or so. While housing is less volatile than shares and seems safer for many, it offers a lower level of liquidity and diversifcation. The bottom line is, once the similar returns of housing and shares are allowed for, and these characteristics are traded off, there is a case for both in investors’ portfolios over the long term.

 

Source: Oliver’s Insights, Edition 37 – 25 November 2010, ‘Australian housing – is it a bubble? What’s the risk?’

How to sell shares without a broker

Over the last 20 years there have been plenty of share floats that have brought everyday Australians into the world of share ownership. One day, perhaps upon retirement, you may decide that you want to sell these shares to fund your lifestyle. This article reveals how to sell your shares without a broker.

Over the last 20 years there have been plenty of share floats that have brought everyday Australians into the world of share ownership. For example:

  • Privatisation of Government assets like Commonwealth Bank, CSL and Telstra.
  • Also large companies like AMP have demutualised and listed on the stock exchange and in the process issued shares to policy holders.

One day, perhaps upon retirement, you may decide that you want to sell these shares to fund your lifestyle. But, how do you sell your shares when you don’t have a broker?

(Technically you can’t directly trade on the Australian Stock Exchange – you have to use an authorised broker. By ‘without a broker’ I mean without the old-school method of talking to a human.)

Online share trading facilities

In our modern world the first idea that may spring to your mind is to establish an account with one of the many online share trading providers.  Certainly that will work. But if you only want to conduct one or two trades it is a lot of effort.

Plus in setting up an account most online providers also establish a new, linked cash account for settling the trades. Again for one or two trades it is an extra account that’ll probably be more hassle than benefit.

Further, if you have some shares in your name, some in your partner’s name and even some in joint names you also may need a separate trading account for each ownership type.

One off trading facilities

If you just want to sell shares and not buy then a one off guest or visitor trade is what you need.

With a visitor trade you can sell the shares and receive a cheque posted to you, which you deposit into an existing account of your choice. No need to establish a new bank account.

Both of the big Australian online share brokers E*Trade and Commsec offer one off trading services. E*Trade refer to it as a Visitor Trade and CommSec refer to it as a One Off trade. You can download the forms from their website.

Paperwork

Yes it still involves a bit of paperwork and you still have to prove your identity by submitting certified copies of your ID. But it does avoid the extra paperwork of closing an account at the end.

TIP: If you already are a customer of CBA and have therefore proven your identity you can avoid that part of the process if you use the Commsec one off trade facility.

Cost

One off trades usually cost more than the standard per-trade fee from each broker. But it is still as low as $50 with E*Trade or $66 with Commsec (depending on size). See their websites for specific details to decide which is cheapest for your trade.

Market price only

One disadvantage of a one off visitor trade compared to establishing the online account is that your shares will be sold at the market price at the time your form is processed. You don’t get to dictate the sale price.

If you want to be able to time the sale of your shares and nominate the sale price you will need to establish the online account or go through the traditional human brokers (remember those?).

Issuer sponsored shares only

You can only use the one off trade facilities if your shares are what is known as “issuer sponsored” rather than “broker sponsored”.

The Commsec form describes how to tell the difference:

  1. Find your share holding statement.
  2. Look for the Shareholder Reference Number (SRN), which it is a 10 digit number.
  3. If your SRN starts with  the letter “I” then your shares are issuer sponsored.
  4. If your SRN starts with the letter “X” then your shares are broker sponsored.

Broker sponsored shares

If your shares are already broker sponsored then just contact that broking company and ask them about the process and cost to sell the shares. You’ll be able to find the broker’s name and contact details on your share holding statement.

If you don’t fancy them or their fees then you can establish an account with one of the online share brokers and transfer your shares to them as your new nominated broker. Then you sell your shares using the normal online trading facility.

In Investing, It’s When You Start And When You Finish

Is investing about timing the market or time in the market or…?

Ed Easterling of Crestmont Research has produced a very interesting illustration of your average annual return depending on when you bought and when you sold your investment. The chart is based on the Standard & Poor’s 500-stock index for the United States of America and goes back as far as 1920 (i.e. before the Great Depression.)

The  New Yorks Times have republished the chart here.

Not surprisingly using long term average returns is very deceiving. Your wealth creation will be greatly affected by the sequence of returns during your investment time frame.

For me this illustration reinforces the importantance of annually reviewing your progress and making adjustments to your strategy and saving rate.

It also reinforces the folly of blindly ‘investing‘ in the share market with a short term view, expecting to make great returns. Short-term trading is for professionals and those playing with loose change from their deep pockets.

(Thanks to loyal reader Gihan for alerting me to this illustration.)

Introducing the new Australian share volatility index

Are you interested in the expected volatility of the share market? Then get some VIX. From tomorrow a new Australian equity volatility benchmark will be published by Standard & Poor’s (S&P) and the Australian Securities Exchange (ASX). The benchmark will be known as the S&P/ASX 200 VIX (ASX code: XVI). Following are some key highlights from the information provided by S&P and the ASX.

Are you interested in the expected volatility of the share market? Then get some VIX.

From tomorrow a new Australian equity volatility benchmark will be published by Standard & Poor’s (S&P) and the Australian Securities Exchange (ASX). The benchmark will be known as the S&P/ASX 200 VIX (ASX code: XVI).

If you are familiar with share market investing you will note the similarity to the VIX index published by the Chicago Board Options Exchange (CBOE). In fact the Australian index will use the same methodology (under licence of course).

You can learn more about the volatility index and download a fact sheet on the ASX website here.

Following are some key highlights from the information provided by S&P and the ASX. If you get lost in all of this it’s ok – you don’t need to know it to successfully create wealth.

What the VIX is

The index measures the expected volatility of the top 200 shares listed on the ASX. Since it is a forward looking index, in a way it is like trying to put science around a crystal ball.

Expected volatility is calculated using the settlement prices of call and put options, which are derived from expected future prices of the underlying share.

Using and interpreting the volatility index

In regards to using the index I like this quote in the media release from Richard Murphy, ASX General Manager, Equity Markets, who said:

“observers of the index will have insight into the degree of uncertainty among investors and their expectations regarding the magnitude of future movements in the local equity market.”

Also from the media release is this tip on how to interpret the index:

“A volatility index at a higher level generally implies a market expectation of large changes in the S&P/ASX 200 over the next 30 days, indicating that investor sentiment is uncertain. Conversely, a lower volatility index value generally implies a market expectation of little change, suggesting greater levels of investor confidence.”

Should you care about the volatility index?

The index looks forward 30 days so it is very short term. That really is only of interest to short term traders and anyone contemplating making a purchase or sale of a direct share during that period. If you are investing for the long term you can probably ignore it and focus on enjoying the other elements of your life.

Further the index is non-directional – volatility is both ways. You don’t know if investors expect the fluctuations to be mostly up or down. So you can’t really interpret from the index that the market will go up or down and therefore you should either buy now or wait, respectively.

So unless you actively trade direct shares you are better off concentrating your energies on other financial elements. (Unless you want to impress people at the next barbecue with comments about how fearful or not investors are.)

Average duration of Australian bull and bear markets

Zurich have published this graph showing the average duration of Australian bull and bear markets from 1970 to December 2009. The index used is the ASX200. Download the graph here.

Average Australian Bull Market

Average Bull Market Duration: 38 months
Average Annual Bull Market Return: 30.8%

Average Australian Bear Market

Average Bear Market Duration: 15 months
Average Annual Bear Market Loss: -31.1%

Interesting, but don’t put too much weight (if any at all) on these sort of statistics when making your investment decisions.