Shares can decline in value

You should realise that there are long periods when the stock market does not generate returns or generates very low returns. In the US for example in the 17 years from December 1964 to December 1981, the Dow Jones recorded a gain of just 1/10th of one percent and in the eleven years to October 2008 it did not record a positive return.

In Australia between September 1987 and September 1996 the All Ordinaries Index returned a capital gain of just 1.9%. See our Returns by Asset Classes 1979-2010 chart to see the negative returns over the last ten years recorded by US Shares and International Shares.

Remember also we are talking averages. It is generally only the big professional investors and fund managers, with the resources, that do better than average!!

Be wary of the hype 

 Here is a classic example of marketing hype carried by a leading on-line broker in Australia to promote the benefits of investing in shares. It says:

"On 28th February 1994, an individual invested $25,000 in a range of shares in the Australian market to build wealth over the long term.

The result:

On 27th February 2009, based on the All Ordinaries Index, the portfolio value could have potentially grown to $37,807, a gain of $12,807 - even though those 15 years included the Asian financial crisis, the dot com boom and bust, the September 11 attacks on the United States, the Iraq war, the sub prime crisis and more."

Sounds great. But in fact the return is merely 2.8% pa and achieved only if the individual could have kept pace with the All Ordinaries index. Not many "individuals" do. If dividends yields were say 3%, arguably that individual would have been better off with cash in a relatively safe interest-bearing account. And almost certainly would have doubled their money had they invested in real estate!!