Quality shares should continue to pay dividend income

AS WE start a new year, it's worth taking a rear mirror look at how the past 12 months have panned out for investors.

There's no doubt 2016 dished up plenty of surprises - notably the UK "Brexit” decision in June, and the election of Donald Trump as US President.

Unexpected shifts in the political or economic landscape inevitably have an impact on investment markets.

However, I'm a big fan of investing for the long-term, and many of the major investment classes have fared well over the past year despite short-term hiccups.

Figures from research group CoreLogic show the residential property market has been a mixed bag - as you'd expect in a country as diverse as Australia.

In Sydney, property prices have climbed 13.1% year on year. Melbourne values jumped 11.3%; Hobart and Canberra values raced ahead by 8.5% and 8.4% respectively, and Brisbane and Adelaide have enjoyed steady property price growth (up 3.9% and 4.7% respectively).

The local share market also performed well. The ASX 200 has delivered gains of 10.25% over the past 12 months. This figure only takes into account capital growth.

Shares can also deliver dividend income, typically in the order of 4%, which tends to be very tax-friendly.

So while it's worth holding some cash in term deposits as "safety” money, in the current low interest rate environment shares offer a good way to spread risk. And you don't have to stick with Australian shares.

Investing in global stock markets offers greater diversification and a chance to access industries that aren't well-represented on the Australian Securities Exchange.

The bottom line is that an investor with a diversified portfolio would have done quite well in 2016.

That's always a strategy worth following because it's a fair bet 2017 will dish up a fresh round of surprises, and yes, there will almost certainly be times when sharemarkets take a dip in response to unexpected news.

However, as a long term investor, I am confident quality shares will recover in value and continue to pay dividend income that helps to pay regular bills.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.


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