In a previous article, we touched on how you are a part owner of some of the world’s largest companies – and why share ownership means more than just buying low and selling high. In this article, we’d like to dig a little deeper into how your interactions with these companies impact you and those around you.
Should I hang on and continue to invest?
While investing in large companies such as Google can provide many benefits, a key factor is stability. By investing in these brands, you are undoubtedly adding a sense of stability that is less likely to be found in small and medium-sized businesses. Given that these companies have grown so large, they have a globally established presence and have often made themselves a necessity in day-to-day life. Who can imagine life without Google? While there is always the possibility of insolvency due to unforeseen circumstances, larger companies can weather economic downturns and are strong enough to bounce back.
This is why you should resist the temptation of withdrawing your investments in the name of safety. It is human to panic during times of uncertainty, but given that these companies are likely to weather the storm, cashing in too soon can have an adverse impact on your wealth. For starters, you will likely lose money by cashing in during a decline, while also missing out on future dividends payouts – but more importantly, you will miss out on the golden opportunity to buy (through your managed fund) other well renowned brands at significantly discounted rates!
To safeguard against being forced to cash in during unfavourable situations, create an emergency fund. You can start your emergency fund by making a monthly contribution to a separate account, until you have enough to cover 3-6 months of your living expenses. Be disciplined and work on your emergency fund during the good times, so that you are well prepared for the bad times.
Why should I support the big guys?
As for supporting these companies, keep in mind that each time you buy groceries at a large supermarket chain, you are keeping the company’s bottom-line ticking. While you may feel that your individual purchase is insignificant, it is our collective impact that powers these global giants. It is also worth considering how this trickles down to our personal wealth – as the strong performance of these companies eventually results in higher dividends and share price appreciation for shareholders
Supporting some of these brands also allows you to contribute towards something bigger, even though you may not realise it. In addition to supporting the millions of people that are directly employed by these giants, you are also helping countless small businesses that rely on these larger ecosystems. For example, when you buy groceries from a large supermarket chain, you are inevitably creating the need to replenish stocks. This impact will eventually trickle down and create new business for small companies that supply products to these larger chains, while also creating opportunities for packaging and logistics suppliers. Continuing to purchase from large brands does not necessarily mean that you aren’t supporting the small guys.
The economic impact of COVID-19 has caused many of us to panic, sending us back into our shells – but when you take the time to truly reflect, you will soon find that uncertain periods are great opportunities to grow!