Time to switch to gold?

With the S&P/ASX 200 Index (ASX: XJO) in full recovery mode, you would think that investors everywhere are basking in the gains that both ASX shares and share markets around the world have given investors over the past 3 months. After all, the ASX 200 is up more than 30% since its 23 March low.

But according to reporting in the Australian Financial Review (AFR), the world’s richest investors are not coming to the party. Instead of barrelling back into shares, the world’s ultra-rich are instead turning to the oldest of investments – gold.

According to the AFR report, advisers to the world’s ultra-rich are recommending as much as a 10% allocation to gold, which is far above the token amounts that were apparently being recommended before the COVID-19 pandemic.

This is despite gold prices rising more than 14% since the start of the year. One troy ounce of gold will set you back around US$1,723 today – or $2,520 in our dollars.

So why are the ultra-rich ignoring shares in favour of gold?

Well, it’s out of fear in my view. Fear of a second wave of coronavirus infections, fear of loose monetary policy, fear of asset bubbles and fear of inflation.

See, shares (despite their many benefits) are not an ultra-safe place to store your wealth if capital preservation is a priority, as we saw in March. And right now, there are growing signs that the unprecedented amount of government intervention in the markets (in particular the US) is driving the rally in shares prices we have been witnessing of late.

What happens if (or when) the US government starts tapering off quantitative easing and bond-buying? Or what happens if it never does? I think these are the questions that the ultra-rich are asking themselves right now. And the logical conclusion for a worst-case scenario is using gold.

Should we all copy the ultra-rich and buy gold?

I do think it can be advantageous to emulate and take lessons from wealthy investors. But I also think that the priorities of the ultra-rich and the everyday investor are disparate. The ultra-wealthy (in my opinion) are typically more concerned about the preservation of wealth rather than building wealth. In this context, I think using gold makes sense.

But I don’t think it makes sense for us Foolish investors who are trying to build long-term wealth with shares. Even though ASX shares are volatile, history shows us that they remain the best asset class for building wealth over long periods of time. We can’t really say the same about gold in my view.

So instead of selling all of your shares and buying up bullion, I think most investors will be better off just sticking to a long-term portfolio of quality ASX shares.

More reading

• 2 blue chip ASX 200 dividend shares to buy next week
• These were the best performers on the ASX 200 last week
• Short-sellers are stepping up their attack against these popular ASX shares
• ASX 200 up again, ASX retailers make big gains
• These 3 ASX ETFs are yet to recover from the market crash

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post Why the ultra-rich are hoarding gold appeared first on Motley Fool Australia.

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To say we live in uncertain times is possibly the greatest understatement of the year so far. The market is rocking back and forth from peaks to troughs in response to rapidly-changing world events. If the share market were to drop again by, say, 10% then I would be looking at these shares to buy for my portfolio.

Second chance value shares

For me, a value share is a good company that is underappreciated by the investing community. Moreover, when crashes happen good companies often get trampled in the rush for the exits. In March there were dozens of good companies selling at great prices. 

Fortescue Metals Group Limited (ASX: FMG) is one of the shares I bought heavily during the ASX trough. I think it is undervalued even today. However, if I can get it cheaper I will try to do that. I am happy to wait to see if it is going to dip again before the economy starts to normalise. Fortescue is selling at a reasonable price to earnings ratio (P/E) of around 6.

Another great value ‘buy’ if the market falls would be Wesfarmers Ltd (ASX: WES). I do not own this share at the moment but I would buy in if the price were to fall by a reasonable amount. I like what this company is doing to reduce poor-performing retail outlets. Recent work to release capital and closing down smaller stores took courage. Also, and most importantly, Wesfarmers has an online asset that is a direct competitor to Kogan.com Ltd (ASX: KGN).

Great growth shares to buy

Of course, everyone wants the chance to buy into Afterpay Ltd (ASX: APT) if the share price lowers again. Personally, though, I think this is pretty unlikely. For me, I would be very interested in investing in EML Payments Ltd (ASX: EML) if the price was to lower to a more reasonable level. Currently, it has a P/E of 102 which indicates the market thinks it will earn a lot in the near future. For me, this seems a little high.

Zip Co Ltd (ASX: Z1P) has nearly doubled in the past month. It now has a market capitalisation of $2.39 billion versus the Afterpay market cap of $15 billion. At best this company has to increase its value 6 times, which I do not believe it’s likely to. I would buy into Zip Co if it reduced its market cap by 25 – 50%. Given the tenuous nature of the market and of these new buy now pay later shares, I think that is a possibility.

Foolish takeaway

There is a lot of value on the share market today, and a lot more opportunity if it were to fall again in the near future. One of the keys to investing is to be patient. Another important discipline is to not get worked up if you ‘miss out’ on an opportunity. There will be others, and there is always something you can do to grow your capital. 

More reading

• Consider these blue chip ASX shares for strong dividend yields
• How to turn $20,000 into $250,000 in 10 years with ASX shares
• How to become a millionaire in 25 years with $20 a day
• These were the worst performers on the ASX 200 last week
• Australian retail sales up 16.3% in May

Daryl Mather owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Wesfarmers Limited. The Motley Fool Australia has recommended Emerchants 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.

The post Which shares to buy if the ASX tumbles appeared first on Motley Fool Australia.

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If you’re planning to add some dividend shares to your portfolio next week, then the ones listed below could be worth considering.

Here’s why I think they are top options for income investors right now:

BHP Group Ltd (ASX: BHP)

If you don’t mind investing in the mining sector, then you might want to consider buying BHP. I think it is a great dividend option right now due to its generous yield and positive outlook. Thanks to its world class operations and their low costs, I believe BHP is well-positioned to continue generating high levels of free cash flow over the coming years. Especially with iron ore at such strong prices.

And given the strength of its balance sheet, I suspect the majority of its free cash flow will be distributed to shareholders through dividends. In light of this, I estimate that the mining giant’s shares currently provide investors with a fully franked ~5% FY 2021 dividend yield.

National Australia Bank Ltd (ASX: NAB)

Another option for investors to consider buying for dividends is NAB. The banking giant’s shares have fallen heavily this year due to concerns over a potential spike in bad debts because of the pandemic. While I feel a rise in bad debts is inevitable, I’m optimistic the provisions it has made are more than enough to cover the potential damage.

In light of this, I feel the worst is behind the bank and now would be a good time to consider a long term investment in its shares. Especially for income investors in this low interest rate environment. At present, I estimate that NAB’s shares offer a generous fully franked 5.2% FY 2021 dividend yield. This is materially better than the interest rates offered with its term deposits and savings accounts.

More reading

• Consider these blue chip ASX shares for strong dividend yields
• These were the best performers on the ASX 200 last week
• Short-sellers are stepping up their attack against these popular ASX shares
• ASX 200 up again, ASX retailers make big gains
• The ASX big bank stock with the best forecast dividend yield for the new year

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post 2 blue chip ASX 200 dividend shares to buy next week appeared first on Motley Fool Australia.

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