ASX vs. S&P 500 – Where should retirees lay their nest egg?
The debate about whether Australian retirees in pension phase (paying no tax) are better off in ASX-listed stocks, or the U.S. companies of the S&P 500 continues to rage.
Australian listed companies are known for their relatively high dividend payout ratios. It is estimated that, in aggregate, about 80 per cent of ASX 200 company profits are paid out as dividends.
Part of the reason is that our tax system causes companies to accumulate franking credits that have zero value to them but huge value to retiree shareholders.
Another reason could be that Australian companies have a lower need to retain capital for growth, as they tend to be mature businesses or have access to cheaper sources of capital elsewhere.
However, U.S. companies retain far more of their profits for growth. Provided they can compound their rising equity balances at high rates of return, they should deliver larger and/or faster increases in intrinsic value, which, over time, is reflected in share prices.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
