Don’t bet it all on the banks

Scott wants to start investing in shares, but …

QPaul, I am looking to start investing in the sharemarket for the first time. When buying bank shares, is it wise to buy into multiple banks or just one? It seems they all move together.

I am not so sure about that, Scott. The dividends have been cracking for decades, but if we go back to around the start of the year 2000, let’s look at the big four banks: CBA was about $23, today $60; ANZ and Westpac were around $10, today $16; NAB has been not so good at around $25 two decades ago, today $16.

I do appreciate that as I write this in early April, the pandemic has not been kind to banks, but there is not much good news in front of them either, certainly in the short to medium term. The market prices the future, so you could argue that all the bad news is priced into the stock and I am very sure we will need a robust banking system as we move forward.

So I would not be unhappy about your idea to buy a bank stock or two, but as you are new to the market, I really would like you to do more research before investing.

We also have other great companies like Woolworths, Coles, CSL, Sonic, BHP and so on, where you could spread your risk. Investing in any one sector is more like taking your money to the dog races.

So my advice is to do more research, take a free online sharemarket course and look at the benefits of diversification. While I have no idea where the market will go in the coming months and year, we will recover and shares at these prices should have a good long-term future.