A bounce in resource stocks helped the Australian share market rally from the red as Chinese economic data held steady. The S&P/ASX 200 index dropped into the red in early trade after Wall Street rallied from a 0.5 per cent loss to finish slightly lower last night after US President Donald Trump backed away from some of his controversial immigration curbs. But the domestic index climbed to finish up 32.3 points, or 0.57 per cent, at 5653.2 as a weaker US dollar supported commodity prices.
What this means for you:
Ever wondered why we have a "home bias" in our portfolio asset allocations? Australian shares make up only around 2% of the global share market, but in our portfolios we hold a significantly higher portion than 2% in Aussie stock. The main reason is the added benefit of franking credits on many Australian shares. This is a credit given to investors to prevent the double taxation of Australian dividends, after the share companies have already paid tax before the dividend gets to the investor. If you're in pension phase in your super, these franking credits can increase your returns on your Australian shares by as much as 2% per year, which is one of the few "free kicks" you can take advantage of.
Why don't we put all the money in Australian shares you might ask? It's because the overall rate of return is also important, not just dividend income. Apart from the last 12 months, the Australian share market has been underwhelming over the last 5 years, with the international shares and property leading the charge for growth. Building a disciplined and diversified long term investment plan will always be the best strategy for investors.