Owning shares in the S&P/ASX 200 (Index: ^AXJO)(ASX: XJO), like Commonwealth Bank of Australia (ASX: CBA), might sound like a good idea but here are three reasons you shouldn't buy Australian shares right now.
#1 You're addicted to CCs
Unfortunately, I do not mean corn chips. I'm talkin' about Credit Cards. If you have a current credit card balance of greater than $0 — make getting rid of that painful piece of plastic your first priority.
Here's why.
Let's say your name is Pauline and you have a credit card charging 15% interest.
Since 1970, the Australian sharemarket has returned 9.9% per year on average.
By paying off her credit card, Pauline is making a saving of 15% — so she is guaranteed to do better than the share market's historical average return!
Give me a 15% return any day.
#2 You don't have the time
I was shocked. In fact, I thought the ASX was pulling my finger when I read this: 43% of investors (read: people who own shares) don't understand how the sharemarket works.
In other words: They own shares but they couldn't tell you how it will make them money.
Now, I'm going to be honest. I don't understand why my doctor prescribed me some medication. But investing isn't biology, and it definitely isn't rocket science.
With as little as two hours of self-paced reading, you could easily explain how the sharemarket works.
So if you haven't got the time to devote just a couple of hours to understanding why you should invest and how it works, get someone else to do it for you.
#3 You don't have a budget
To fail to plan is to plan to fail. Or something like that.
The absolute worst thing you can be in the sharemarket is a 'forced seller', meaning you are forced to sell your shares because you have lost your job or run out of cash. It happens. More often than many of us expect.
Write down your budget, even just a basic one on a used piece of paper.
I did it recently — it saved me heaps.
I worked out that between my car loan repayments, registration, fuel, and services, my car cost me $700 per month. $700! When I'm fortunate enough to have a railway station which is five minutes walk from my house.
You can guess what I did next.
However, I only saw the car loan repayment ($350) debited from my account. It wasn't until I wrote down my budget that I realised what it was costing me for a little bit of flexibility.
Of course, getting rid of the family car probably isn't a strategy available to most people but it's not until you write things down that you realise where the fat can be cut.
Foolish Takeaway
If you have a budget, you have credit cards under control and you are prepared to take some time to understand how investing works, it's time to get onboard the ASX.
If you cannot tick those boxes, go away and come back when you want great investing ideas.
We'll be waiting.
