I’m not afraid to invest in shares during this recession.

After the Australian Bureau of Statistics (ABS) confirmed that Australia’s economy contracted by 0.3% in the March 2020 quarter, it seems clear that the country will enter a recession when the June 2020 quarter number is revealed. Indeed, Treasurer Josh Frydenberg has said that Australia is in recession today.

Recessions signal that times are tough for many areas of the country. But you wouldn’t know it from looking at the S&P/ASX 200 Index (ASX: XJO). It’s up another 1.5% today, adding to the previous gains of over the past several weeks.

The country is in the middle of a pandemic-caused recession, but some investors are already looking ahead to the other side. And I think that’s what most investors should do too.

What happens in a 12-month period shouldn’t necessarily change your long-term thoughts about shares unless it permanently alters their prospects for the foreseeable future. Shares like Nextdc Ltd (ASX: NXT) and Pushpay Holdings Ltd (ASX: PPH) have actually seen their prospects strengthen because of the unfortunate events.  

When you look at shares like Wesfarmers Ltd (ASX: WES) you can see the share price is still lower than it was before the coronavirus even with interest rates lower and reliable trading for Bunnings and Officeworks.

Shares I’m looking to invest in

I have been investing throughout the market selloff and I’ll be continuing to invest in shares during this recession. I bought shares of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) when it was lower. I also bought shares of WAM Microcap Limited (ASX: WMI) and Magellan Global Trust (ASX: MGG) when they were lower.

I’d really like to invest in shares like Altium Limited (ASX: ALU) and MFF Capital Investments Ltd (ASX: MFF) if they were to fall back in value again. The strength of the Australian dollar makes me want to buy shares which generate earnings from America.

But for now I’ve got my eyes on mostly Australian shares because of how much of a better position the country is in terms of the coronavirus as well as things like a strong iron ore price and less people on jobkeeper.

More reading

• Here’s why long term investing can outperform shorter holding periods
• Top brokers name 3 ASX 200 shares to buy right now
• The smartest ASX 200 shares to buy with $2,500 today
• ASX 200 up 1%: Big four banks jump, Afterpay hits record high
• Are our ASX big miners on an earnings upgrade cycle?

Motley Fool contributor Tristan Harrison owns shares of Altium, Magellan Flagship Fund Ltd, MAGLOBTRST UNITS, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Altium and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Afterpay Ltd (ASX: APT) share price has been sparkling again on Wednesday.

This morning the payments company’s shares climbed 5.5% to reach a new record high of $52.29.

When Afterpay’s shares hit that level, it meant they were up an incredible 550% from their March low.

Why is the Afterpay share price at a record high?

Investors have been buying the buy now pay later provider’s shares after rival Zip Co Ltd (ASX: Z1P) announced its expansion into the U.S. market.

While ordinarily you might be concerned about increasing competition in the lucrative retail market, judging by Afterpay’s share price, investors don’t see things this way.

This is because both Afterpay and Zip Co have successfully co-existed in the Australian market for some time now without stifling each other’s growth. 

In fact, you could argue that they have been good for each other and helped accelerate the adoption of the payment method across the country. Investors may be hopeful the same happens in America.

And given that the U.S. retail market is estimated to be worth $5 billion per year, there’s certainly room for both companies.

Why else is the Afterpay share price at a record high?

In addition to this, Afterpay’s shares have been on fire over the last couple of months thanks to a number of factors.

These include WeChat owner Tencent Holdings becoming a substantial shareholder, its strong trading update (which showed that it has continued to perform strongly during the pandemic), and a stellar U.S. update. The latter revealed that Afterpay now has 5 million active customers in the country.

All in all, things are looking very rosy for Afterpay right now.

Is it too late to invest?

If you’re planning to make a long term investment, then I would still be a buyer of Afterpay’s shares today.

There may be better entry points down the line, but this is far from guaranteed with a rapidly growing company like Afterpay.

Though, given that it is a reasonably high risk investment, I would suggest investors limit the size of their investment to just a small part of their portfolio.

More reading

• Sezzle Inc shares and 2 other small cap ASX techs surge higher today
• Why Afterpay, Infigen, Qantas, & Zip Co shares are charging higher
• ASX 200 up 1%: Big four banks jump, Afterpay hits record high
• The Zip Co share price just zoomed to a record high: Is it too late to invest?
• Afterpay and these top ASX tech shares are on fire in 2020

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There are many different approaches employed by investors attempting to generate solid returns from the ASX. However, for your average investor, I believe by far the best is to take a long-term investing approach.

A long-term investing strategy has a number of benefits. For instance, trading costs will be considerably lower and, as I will demonstrate, this can have a significant impact on portfolio returns. Especially as compounding takes hold. Additionally, holding shares for longer than 12 months means you are eligible for a capital gains tax (CGT) discount. So, instead of paying your marginal tax rate on 100% of your capital gains, if you hold the shares for more than 12 months, you’ll only pay tax on 50% of the gain.

Lastly, the CGT is paid upon each sale of a company. This means the amount you can reinvest is lower due to the tax that has been paid, which hurts your portfolio’s compounding ability.

These few advantages may not appear to be overly significant, however let’s look at a couple of scenarios to show just how much of a difference long-term investing can make.

Long-term investing versus short-term investing

For this exercise, we will compare 2 portfolios, both containing a starting investment of $30,000 evenly spread across 15 shares. In addition, we’ll assume an annual return of 10% and brokerage fee of $15 per trade. Lastly we’ll apply a marginal tax rate of 32.5% to calculate the CGT. This rate is applicable for a taxable income between $37,001 – $90,000.

Portfolio 1 – short-term investing

For our short-term investing portfolio, we will assume an average holding period of 6 months. This means that the whole portfolio will be turned over every 6 months.

The drawbacks of this frequent trading are paying CGT on 100% of the returns and the large brokerage costs of $900 per year.

Frequent trading often occurs as a result of emotional trading. That is, trading in and out of positions frequently based on company news and market sentiment. Instead, I believe looking beyond market sentiment and sticking with companies through volatile periods can be a great way to reduce costs and, therefore, boost returns.

Portfolio 2 – long-term investing

For our long-term investing portfolio, we will assume that only 1 out of the 15 companies is sold and replaced each year.

This strategy benefits from lower CGT, only $30 in brokerage fees annually and that tax free compounding effect we get from a low turnover.

This chart shows the above 2 portfolios’ growth over a 20 year period, and the effects can be sobering. The long-term investing portfolio has delivered a return 167% greater than that of the short-term. This is despite both portfolios achieving the same, 10% average annual return. See how significant the effects of all the additional trading and CGT can be on your returns?

Chart by author

Foolish takeaway

Here at Motley Fool, we are long-term investors through and through. We believe the compounding effect and overall benefits of long-term investing make it the single greatest way to build wealth over time. A few ASX shares I’m holding for the long term are ResMed Inc (ASX: RMD), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Cleanaway Waste Management Ltd (ASX: CWY). I believe all 3 of these companies have exciting futures and, as such, I plan to hold them for the next decade.

More reading

• Why I’m not afraid to invest in shares during this recession
• How to become a millionaire by investing in ASX shares
• 3 high quality ASX blue chip shares to buy in June
• 3 founder-led ASX shares to buy for strong long-term returns
• ASX 200 investor in your 40s? 3 shares to buy now

Motley Fool contributor Michael Tonon owns shares of Cleanaway Waste Management Ltd, ResMed Inc., and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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