What can shares bring to my portfolio?

Shares are considered a growth asset because the amount of money, or capital, that you invest can grow over time.

Because share markets can be volatile, with the tendency to move up and down sharply, shares are best suited to long term investors who won’t need to access their money for three to five years.

Long term exposure to the share market can be beneficial. For example, in the five years to the end of August 2016, the All Ordinaries index, which tracks the performance of around 500 Australian companies, has grown in value by 27%.

That means an initial investment of $15,000 in a product that aims to match the performance of the All Ordinaries index, such as an exchange traded fund (ETF), would have grown to $18,980, pre-tax and fees.

That represents a capital gain of $3,980.

Shares in some individual companies would have grown by more during that time and some would have grown by less.

The last 5 years have seen periods of volatility where prices have sharply risen and fallen in a relatively short space of time. These price movements demonstrate the need to be able to forego access to your money for a period of time when investing in shares and to also maintain the long-term view.

Don’t forget the dividends

As well as growth, shares can also bring income to your portfolio through dividends.

When companies make a profit they have the option to distribute a portion of it to shareholders by paying dividends, which usually occurs twice a year, if at all.

It’s very important to consider dividends as a part of your overall return on investment.

Please remember: Investment in shares and other securities involves risk. Share prices rise and fall. The payment of dividends and the return of capital are not guaranteed. Past performance is not indicative of future performance.