At the end of a couple of years when the sharemarket has performed “badly” (that is gone down in value ) it is very easy while having a grumble to your mates at the pub or lodging a formal complaint to your investment advisor because your investments have gone down in value to forget the three most important factors in relation to share investing.

Firstly you have only really lost your money when you sell and crystallise losses. If you bought your shares at $8.40, $7.40, $6.40 or $5.40 and you have still got them the original sum you paid is represented by that number of shares. The fact that those shares are now worth less, the same as or more than your original purchase is only of passing interest, depending on what your original purpose was. You will only crystallise your loss or profit when you actually sell the shares, and until you do so nothing has happened to you.

Secondly the sharemarket always goes up over time. Not every share but the market as a whole . This is one of the reasons why investing in the share market is best done through funds that are managed by professionals. Before you jump in and tell me what a great investment the Commonwealth Bank has been please find out how many smart Australians who hopped in to that float also have Telstra ( especially through T2 ) as their only other share investment.

The Australian share market, like all share markets, has had some substantial falls – 1994, 2000, 2008 and the list will go on.

So will the inevitable recovery and growth that has always occurred for well over 100 years!

Most importantly good quality stocks or managed equity funds provide a constant income stream from dividends. Dividends are totally unaffected by the prices that investors or even speculators are prepared to pay for those same shares and a company that continues to grow (like the Commonwealth Bank) has continued to increase its profit AND ITS DIVIDEND. This means that inevitably the share price of the company will increase.

If you have bought a share for income purposes what does it matter if the share price drops? Your share parcel simply represents ownership of a business that has been set up to make and distribute a profit to its owners, and you will be one of those owners.