Author: therawinformant

WAM Capital Limited (ASX: WAM) is a listed investment company (LIC) well-known for its fully-franked dividends. Since its inception in 1999, WAM Capital has returned an average of 16.1% per annum for its investors (before fees and taxes). A large part of this outperformance has come in the form of dividend payments. The company has been holding or increasing its dividend every year since 2010. Saying that, the dividend has been held steady at 15.5 cents per share for the last two years. This dividend still gives WAM Capital shares a trailing yield of 6.92% on current prices. That’s 9.89% grossed-up with WAM Capital’s full franking credits (I apologise for rounding this up to 10% in the headline).

A WAM comeback tour

In recent times, I have written about how I wouldn’t be too interested in WAM Capital for dividend income. That concern largely stemmed from WAM Capital’s dwindling profit reserve. LICs usually pay out their dividends from a profit reserve. A profit reserve stores profits from investment activities earmarked for dividend payments.

Some other LICs, like WAM Capital’s sibling, WAM Research Limited (ASX: WAX), have well-funded profit reserves. In WAM Research’s case, its two most recent dividends came in at 4.9 cents per share each. That gives WAM Research a trailing, grossed-up yield of 9.21% on current pricing. Yet this dividend looks remarkably sustainable given that WAM Research had 34.9 cents per share in its profit reserve, as of 31 August.

But as of 31 July, WAM Capital had just 8.7 cents per share left in its profit reserve. Some simple maths will tell you that this isn’t enough to sustain a 15.5 cents per share annual dividend for too long.

But WAM Capital’s August update contained a pleasant surprise. As of 31 August, WAM Capital now reports it has 17.5 cents per share in its profit reserve. How did it manage this recovery? Well, the company told investors that last month was “the best August reporting season in the company’s history”, with winners like Codan Limited (ASX: CDA) helping to boost the LIC’s profits.

Although the newly restocked profit reserve isn’t quite at the comfort level for income investors that WAM Research provides, it’s still a marked improvement and buys WAM Capital another year to expand this reserve even further.

Is WAM Capital a buy today?

WAM Capital’s dividend stockpile certainly looks a lot healthier than it did a month ago. Saying that, I’m still not convinced it remains a better option for income investors over other LICs like WAM Research. Although its August profit reserves were a fantastic development for investors, I would simply prefer the increased certainty that something like WAM Research provides today. I’ll be keeping my eye on WAM Capital though and may rethink my position if its profit reserves improve further.

More reading

• Is this the ASX 200 dividend share you can hold into retirement?
• Are these high yield ASX dividend shares worth buying?
• 2 ASX dividend shares with yields over 8%
• 4 dividend kings to buy now and hold forever
• Is the new WAM Alternative Assets LIC a buy?

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While it can be tempting to try and get rich quickly by day trading shares such as BrainChip Holdings Ltd (ASX: BRN), Novonix Ltd (ASX: NVX), and Piedmont Lithium Ltd (ASX: PLL), it’s worth remembering that it is also a quick way to lose a lot of money.

Statistically, day trading has been proven to create far more losers than winners. An estimated 90% of day traders lose money, with 9% believed to do a little better than break-even, and just 1% actually making real money.

In light of this, I think investors interested in building their wealth should consider a more prudent investment strategy that involves buying and holding shares over the long term.

With that in mind, here are two ASX shares that I believe investors should consider:

CSL Limited (ASX: CSL)

I think CSL is easily one of the best buy and hold options on the Australian share market. CSL, which was previously known as the Commonwealth Serum Laboratories, was founded all the way back in 1916 to service the needs of a nation isolated by war. Since then it has become one of the world’s leading biotherapeutics companies with a market capitalisation of $135 billion.

Arguably the key to the company’s success has been its investment in research and development (R&D). Every year CSL invests somewhere in the region of 10% to 12% of its sales revenue back into its R&D activities. This has helped ensure that CSL is at the forefront of innovation in the industry and has led to it developing a wide portfolio of therapies and vaccines generating billions of dollars of sales each year. Looking at its current portfolio and burgeoning R&D pipeline, I’m very confident there will be more strong growth over the 2020s and beyond.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another ASX share that I think would be a great buy and hold option for investors is Domino’s. It is the master franchise holder in Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg, and Denmark.

Although it has been growing its store network materially over the last decade and now has a total of 2,668 stores, management isn’t anywhere near stopping there. It has set itself a target of more than doubling its network to 5,500 stores by 2033. If it achieves this and can continue to deliver same store sales growth, then I expect its earnings growth over the 2020s to be very strong. This could lead to the Domino’s share price smashing the market.

More reading

• BrainChip (ASX:BRN) and Novonix (NVX) were among the most traded shares on the ASX last week
• 3 ASX dividend shares to buy for income today
• ASX 200 finishes flat, A2 Milk shares drop 10%
• Is the run over for ASX lithium shares after Tesla’s battery day? 
• Piedmont Lithium (ASX:PLL) share price rockets 83% higher on Tesla deal

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 CSL Ltd. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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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Magellan Financial Group Ltd (ASX: MFG) has long been considered one of Australia’s leading investment managers. In fact, an investment in Magellan on 4 January, 2010 would have multiplied by 67 times the original investment. Specifically, this represents an average annual growth rate of 52.7%. To illustrate further, if this continues into the future, an investor would double their initial investment every two years.

Magellan is the parent company that owns a range of unlisted and listed funds in global equities and infrastructure. As funds, most of these pay distributions not dividends, and are sold in units, not shares. Nonetheless, the most important point is that all of the funds are doing very well. If you are looking for an investment in which you can leave your funds for 10 to 20 years, then I think Magellan is a good option for the following reasons.

1. Future growth

Magellan recently announced it had taken a 40% stake in Barrenjoey Capital Partners, an unlisted, full service, investment bank planned for Australia. Magellan will have no involvement in the day-to-day operation of the company, but has retained a board seat. So while it is largely a passive investment, Magellan will have some oversight of the investment bank.

The goal is clearly to generate an annual return in excess of 10% via this unlisted asset. If the model is anything like Macquarie Group Ltd (ASX: MQG), then there will be opportunities to increase exposure to other unlisted assets as in-house investments. 

2. Past performance

The company’s historical financial metrics demand respect and subsequently, the Magellan share price growth has been incredible. Since 2010, Magellan has seen a compound annual growth rate (CAGR) of 50.5% in its earnings per share. Moreover, the company has also increased its per share dividend payment by a CAGR of 59.6% over the past ten years. 

There is a raft of metrics to review on this company. However, the one that really stands out to me is the return on equity (ROE). This is the return on assets minus liabilities. So for every $100 of assets the company has, unencumbered by debt, Magellan has earned an average of $38 over the past ten years. This company is truly impressive at allocating capital for the best return.

3. Magellan is cheap

By every valuation method I know, the Magellan share price is currently selling at a discount. Nonetheless, it has a current price-to-earnings (P/E) ratio of 26.59, which at first glance seems high. Moreover, if this was, say, Fortescue Metals Group Limited (ASX: FMG), or Commonwealth Bank of Australia (ASX: CBA) I would agree it was too high. However, with Magellan there is every reason to have high hopes for future performance.

The company also has a trailing 12-month dividend yield of 3.7%. While this isn’t a high yield, it is still pretty solid in the current environment and is secondary to the capital growth I expect to see.

More reading

• Why Magellan Global Trust (ASX:MGG) could be a retiree’s dream share
• 3 great ASX blue chip shares I’d buy
• Top brokers name 3 ASX shares to buy today
• Leading brokers name 3 ASX shares to sell today
• ASX 200 drops another 0.8%, Magellan (ASX:MFG) reveals a large investment

Motley Fool contributor Daryl Mather owns shares of Fortescue Metals Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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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If you’re an eligible shareholder of Commonwealth Bank of Australia (ASX: CBA), then later today you should be receiving the banking giant’s fully franked 98 cents per share final dividend.

While I suspect that a good portion of shareholders will be using these funds as a source of income, there may be some which wish to reinvest these dividends back into the share market.

If you’re part of the latter group, then here’s where I think you should consider investing these funds:

Accent Group Ltd (ASX: AX1)

If you’re looking to turn these dividends into even more dividends, then you might want to take a look at Accent Group. It is a footwear-focused retail group which owns store brands such as HYPE DC and Platypus. It has been growing its earnings and dividends at a solid rate over the last few years. Pleasingly, this even continued during the pandemic thanks to the popularity of its brands, its strong market position, and particularly its growing online business.

I’m confident there will be more of the same over the coming years, especially given its expansion plans. In FY 2021 I’m expecting Accent to pay a 9 cents per share fully franked dividend. Based on the current Accent share price, this means investors will receive a generous 5.4% dividend yield.

Altium Limited (ASX: ALU)

Altium is a leading electronic design software company best-known for its eponymous Altium Designer product. This software allows engineers to design the complex printed circuit boards that are found in almost all electronic devices.

Demand for its software is expected to rise strongly in the coming years thanks to the rapidly growing Internet of Things and artificial intelligence markets. This is because these two markets are underpinning the proliferation of electronic devices globally. Management appears confident in its growth trajectory. It is aiming to grow its revenue to US$500 million by 2025-2026. This will be an increase of over 150% from the revenue of US$189 million it achieved in FY 2020.

More reading

• The ASX big bank stock that’s most at risk of a dividend cut
• BrainChip (ASX:BRN) and Novonix (NVX) were among the most traded shares on the ASX last week
• 3 ASX dividend shares to buy for income today
• Here are the 10 most popular ETFs on the ASX
• ASX 200 Weekly Wrap: Bank shares push ASX 200 higher

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 and recommends Altium. The Motley Fool Australia has recommended Accent Group. 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 Full Federal Court has handed Woolworths Group Ltd (ASX: WOW) a win against the Australian Competition and Consumer Commission (ACCC).

The consumer watchdog started legal action two years ago alleging that the supermarket was misleading customers. The accusation involved a range of house-brand disposable cutlery, plates and bowls that were labelled “biodegradable and compostable”.

The ACCC lost the original Federal Court case last year but immediately appealed.

But the Full Federal Court’s dismissal of the appeal on Tuesday gives Woolworths a decisive victory.

The ACCC had argued that labelling the W Select Eco products with environmentally friendly words like “biodegradable and compostable” without supporting evidence should not be allowed.

“We appealed this case because we believe that businesses should be able to support claims they make about their products, especially when consumers are likely to pay more for the product because of the claims made,” said ACCC Chair, Rod Sims.

“Consumers may select products based on the claims made by the seller or manufacturer, and should be able to rely on environmental claims made by businesses about their products.”

A Woolworths spokesperson told The Motley Fool that the company was pleased with the court’s decision.

“We treat our obligations under the Australian Consumer Law very seriously, and understand how important it is that our customers can trust the environmental claims we make.”

How did Woolworths win?

The ACCC’s case was that the offending words gave the impression to customers that the picnic crockery would rot in “a reasonable time” in compost or landfill.

Australian Consumer Law dictates that product claims about “future matters” are misleading unless the merchant has “reasonable grounds”.

The judge, however, found that Woolworths’ claims were not about future characteristics but “biodegradable and compostable” described the items’ inherent state.

The appeal hearing found that the supermarket never represented the W Select Eco products would decompose within a certain amount of time.

The disposable plates are made of waste products extracted from sugarcane. The cutlery consists mostly of chemicals derived from corn starch.

The Motley Fool understands “independent certification” was published in 2014 when the range was launched.

The Woolworths share price was down 0.53% on Tuesday, to close the day at $37.32.

More reading

• ASX 200 Weekly Wrap: Bank shares push ASX 200 higher
• Is the Coles (ASX:COL) share price a buy after renewable energy deal?
• Afterpay (ASX:APT) one of top 10 lockdown winners
• Openpay (ASX:OPY) share price pushes higher on business update
• ASX 200 Weekly Wrap: ASX 200 snaps 4 week losing streak… just

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths 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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With interest rates at record lows and potentially going even lower in the near term, it certainly is a tough environment for income investors.

Fortunately for them, the share market is home to a large number of companies offering attractive dividend yields.

Two top ASX dividend shares that I think would be great options right now are listed below. Here’s why I would buy them:

Bravura Solutions Ltd (ASX: BVS)

I think Bravura Solutions would be a great option for income investors. Bravura is a leading provider of software products and services to the wealth management and funds administration industries. It has a number of products in its arsenal such as the Rufus transfer agency solution and the Midwinter financial planning solution.

However, the key product for me is the Sonata wealth management platform. It has a massive market opportunity and looks well-placed to underpin Bravura’s growth in the coming years once the pandemic passes. For now, I estimate that it will pay shareholders an 11.5 cents per share dividend in FY 2021. Based on the current Bravura share price, this equates to a 3.2% dividend yield.

National Storage REIT (ASX: NSR)

A second dividend share to consider buying is National Storage. I think the self-storage operator could be a good option for income investors due to its strong market position and positive long term outlook thanks to its organic and inorganic growth opportunities. 

And while the company’s earnings are likely to be flat at best in FY 2021 because of the pandemic, I’m confident that it will return to growth once it passes. Especially given predictions for house prices to rise strongly next year. This could lead to higher housing sales activity and increasing demand for its centres. For now, based on the current National Storage share price, I estimate that it offers investors a forward 4.1% dividend yield.

More reading

• 2 top ASX dividend shares for income investors to buy today
• Why I would buy Commonwealth Bank (ASX:CBA) and this ASX dividend share
• 3 of the best ASX growth shares you can buy right now
• Why I would buy Altium (ASX:ALU) and these ASX growth shares
• 3 mid cap ASX shares to buy for strong potential returns

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. 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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On Tuesday the S&P/ASX 200 Index (ASX: XJO) had a subdued day and edged ever so slightly lower. The benchmark index ended the day 0.2 points lower at 5,952.1 points.

Will the market be able to bounce back from this on Wednesday? Here are five things to watch:

ASX 200 expected to tumble.

It looks set to be a tough day of trade for the ASX 200 on Wednesday. According to the latest SPI futures, the ASX 200 is poised to open the day 52 points or 0.9% lower this morning. This follows declines on Wall Street which ended a three-day winning streak. The Dow Jones fell 0.5%, the S&P 500 dropped 0.5%, and the Nasdaq edged 0.3% lower.

Corporate Travel Management to return.

The Corporate Travel Management Ltd (ASX: CTD) share price will be on watch today when it returns from its trading halt. The corporate travel company requested the halt on Monday whilst it undertook a $375 million capital raising. These funds will be used to acquire Travel & Transport for $274.5 million. Travel & Transport is a leading US travel management company. Management is forecasting the acquisition to be approximately 30% earnings per share accretive post-synergies.

Oil prices sink lower

Energy shares such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) could come under pressure on Wednesday after oil prices sank lower. According to Bloomberg, the WTI crude oil price dropped 3.9% to US$39.03 a barrel and the Brent crude oil price has fallen 3.8% to US$40.84 a barrel. Concerns over rising coronavirus cases weighed on sentiment.

Gold price continues its ascent.

Gold miners such as Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) could be on the rise today after the gold price continued its recovery. According to CNBC, the spot gold price is up 1.05% to US$1,902.10 an ounce. This follows the further softening of the U.S. dollar and stimulus optimism.

ASX annual general meeting.

The ASX Ltd (ASX: ASX) share price could be on the move on Wednesday. Later today the stock exchange operator will be holding its virtual annual general meeting. The company could also release a trading update ahead of the meeting.

More reading

• 2 must-buy ASX 200 shares I rate highly
• 3 ways to protect your ASX share portfolio in a market crash
• The ASX big bank stock that’s most at risk of a dividend cut
• ASX 200 ends the day flat, BOQ (ASX:BOQ) shares drop on impairments
• The forgotten ASX gold stock that UBS is urging you to buy today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management 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 S&P/ASX 200 Index (ASX: XJO) and All Ordinaries Index (ASX: XAO) have seen a significant improvement recently following a series of challenging sessions this month. With the United States tech sell off largely behind us, October could be shaping up as an opportunistic month for ASX tech shares. 

2 ASX tech shares to watch in October

1. Selfwealth Ltd (ASX: SWF) 

Selfwealth is Australia’s first peer-to-peer investing platform with a simple, flat-fee brokerage fee. The company charges $9.50 per trade on the ASX regardless of position size. Its unique product and quality customer service has seen revenues soar 313% to $8.6 million in FY20 with a 235% increase in active traders to 46,445 and an improved cash burn of $147,000 down from $3.4 million in FY19. The company has seen a sharp increase in active traders through the pandemic and sees itself as a young brand developing into one of Australia’s most trusted investment platforms. 

Selfwealth will launch US trading in the December quarter. The US market is the most popular international market with Australian investors and the company intends to maintain its highly-competitive fee structure. I believe the announcement and commencement of US trading could be the catalyst to take the Selfwealth share price to the next level. While Selfwealth is a smaller company relative to most household ASX tech shares, it could become a leader in the investing space.  

2. Tyro Payments Ltd (ASX: TYR) 

EFTPOs provider Tyro Payments has had a challenging year amidst COVID-19. Its FY20 results highlight a 15% increase in transaction value to $20.1 billion, 11% increase in merchants to 32,176 and 11% increase in total revenue to $210.7 million. It finished FY20 with an earnings before interest, taxes, depreciation and amortisation (EBITDA) loss of $4.4 million compared to the $8.6 million loss in FY19. The company maintains a strong liquidity position of $188.3 million in cash. 

Tyro has expanded its product offerings to include e-commerce transactions, telehealth transactions such as Medicare benefits and Alipay. Tyro is also involved in banking operations providing SMEs cash advances, deposit accounts and term deposit facilities. Its banking operations saw a 38.1% increase in revenue to $1.8 million and gross profits of $1.3 million.  

Tyro has been providing the market with weekly transaction value updates to provide transparency as to the impact of COVID-19. I believe the anticipated relaxation of lockdown measures in Victoria and reopening of borders could see a significant improvement in Tyro’s transaction volumes. The company’s strong cash position, product verticals and anticipated transaction volume recovery could be a catalyst for a strong share price performance moving into October. I believe the Tyro share price deserves a place on any ASX tech share watchlist. 

More reading

• What you need to know about Tyro’s share price roller coaster today
• 3 ASX shares for beginners to buy
• A definitive guide to September ASX share trends
• This ASX tech share is still cheap to buy
• 3 small cap ASX growth shares I’d buy with $1,000

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments. 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.

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The benchmark S&P/ASX 200 Index (ASX: XJO) is home to a number of high quality shares for investors to choose from.

But with such a diverse range of shares available to investors, it can be difficult to decide which to invest your hard-earned money into.

Well, two ASX 200 shares which I think are must buys are listed below. Here’s why I rate them highly:

Afterpay Ltd (ASX: APT)

The first ASX 200 share I think is a must-buy is Afterpay. Although it is certainly a high risk option (and therefore not suitable for all investors), I believe the potential returns on offer over the long term make it a great buy and hold option. This is due to its international expansion and leading position in a buy now pay later industry growing rapidly thanks to the increasing popularity of the payment method with both consumers and retailers. 

In respect to its international expansion, Afterpay has recently launched in Canada and acquired its way onto mainland Europe. But it isn’t stopping there. Thanks partly to its relationship with WeChat owner, Tencent Holdings, the company has its eyes on entering the Asia market. Combined with its $5 trillion opportunity in the United States, I believe Afterpay has the potential to become a giant of the payments industry in the future.

ResMed Inc. (ASX: RMD)

Another ASX 200 share that I think is a must buy is ResMed. Thanks to the growing popularity of its masks and software solutions, it has been growing at a very strong rate over the last decade. Pleasingly, the company has started the new decade just as strongly as it finished the last. In FY 2020 it delivered a 15% constant currency increase in revenue to US$2,957 million and a 32% jump in net income to US$692.8 million.

Looking ahead, I believe it is well-placed to continue this strong form for some time to come. This is due to its world-class products and the massive number of undiagnosed sleep apnoea sufferers globally. Another big positive, which is often overlooked, is its rapidly growing digital health ecosystem. At the end of FY 2020 it had over 12 million cloud connectable medical devices. This provides ResMed with strong recurring revenues and an invaluable amount of high quality data.

More reading

• 3 ways to protect your ASX share portfolio in a market crash
• The ASX big bank stock that’s most at risk of a dividend cut
• ASX 200 ends the day flat, BOQ (ASX:BOQ) shares drop on impairments
• The forgotten ASX gold stock that UBS is urging you to buy today
• Leading brokers name 3 ASX shares to sell today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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The S&P/ASX 200 Index (ASX: XJO) has been in a bit of a funk lately. Between 19 August and 22 September, ASX 200 shares lost more than 6% of their value. Although the index has now recovered around 3% since the ‘dip’ bottomed out last week at 5,784 points, these wobbles were enough to have some ASX investors nervous. What if the market does what it did back in March again?

Well, unfortunately, I have no easy answers as to whether there will indeed be another market crash in 2020 — no one does. But what I do know is that if an investor is worried about an imminent crash, there are certain steps one can take to protect a share portfolio if such a thing comes to pass.

3 ways to protect an ASX share portfolio in a market crash

Hoard cash

Cash is the ultimate defence against a market crash. While cash makes a lousy long-term investment (especially in today’s low interest rate environment), it is also an investor’s best friend in a share market crash. Not only does cash keep its value and liquidity in any market condition, you can also use it in a crash to buy ASX shares at cheaper prices. I don’t ever ‘switch’ my entire portfolio to cash or vice-versa. But I do like to keep a varying percentage in cash at all times, depending on market conditions. If you’re worried about a crash, increasing your cash position is one of the easiest ways to build a buffer.

Own strong ASX dividend-paying shares

One of the best things about a strong ASX dividend-paying share is the relative certainty of the income you’re receiving. 2020 and the pandemic has made it especially hard for former dividend-heavyweights to keep the divideds coming this year. But they are out there. And receiving income during a market crash can be a great way of buffering your portfolio against paper losses, as well as giving you some cash to spend on cheap shares.

Hedge with ETFs

Exchange-traded funds (ETFs) are another way you can protect your portfolio against a market crash. Some ETFs are specifically designed for this purpose. The BetaShares Australian Equities Bear Hedge (ASX: BEAR) is one such example. It’s designed (according to BetaShares) so that a “1% fall in the Australian sharemarket on a given day can generally be expected to deliver a 0.9% to 1.1% increase in the value of the fund (and vice versa)”. There are other options too. Many investors like to hedge against a market rash with gold, either bullion, gold miners or gold ETFs like the ETFS Metal Securities Australia Ltd (ASX: GOLD).

These are both legitimate instruments to use, but I wouldn’t recommend them for a beginner investor, as they can be quite complex to manage effectively.

Foolish takeaway

Although many investors would love to protect their share portfolios in a market crash, the unfortunate reality is that (like any insurance), protecting your portfolio usually costs you money if the market crash doesn’t eventuate. Cash doesn’t fall in value when the share market crashes, but it also doesn’t rise when the markets do. And gold and inverse ETFs can fall in value if the markets rise. Remember, market crashes are part of the deal when it comes to investing. And they don’t last forever.

More reading

• 2 must-buy ASX 200 shares I rate highly
• The ASX big bank stock that’s most at risk of a dividend cut
• ASX 200 ends the day flat, BOQ (ASX:BOQ) shares drop on impairments
• The forgotten ASX gold stock that UBS is urging you to buy today
• One ASX tech share to buy today ahead of government cash splash

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.

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