Question

George, their family friend has informed the couple(Jacinda and Steven) during a family dinner that “although in Australia the individuals invest directly in the stock market, in recent years 31% of the adult population directly invest by holding shares, down from 44% in 2004”. Their question to you is:

If direct share market participation is a good or bad strategy for an investor? Discuss one reason why investors should or should not invest directly in the Australian shares.

Answer 1

The direct participation by people in stock markets can be good or bad both. It depends on the expectations of the people, the amount they are willing to invest, the risk they can take and the research they are willing to put in. Directly investing in shares without the help of mutual funds etc can be beneficial to you if you regularly follow the markets, have a sense of what drives stocks, etc. Investing in mutual funds etc ensures that the experts make the decision on your behalf but that's why it also has a cost related to it. Hence, if you would like to minimize the cost, you can invest yourself but it will take efforts and time and one has to be patient with investing. Hence, direct participation might not be the best strategy for everyone.