Author: therawinformant

Early access to super is a hot topic right now as part of the Federal Government’s coronavirus response measures.

I’m a big supporter of the superannuation system and it’s easy to characterise early access of the scheme as a poor personal finance move.

However, are there any circumstances where accessing your retirement funds actually makes financial sense?

When could it make sense to access your super early?

The easy answer to that is never. I personally think that accessing your super early will make your retirement a lot more difficult.

Clearly, this will be contextual in personal circumstances. However, those in a strong financial position are probably not the same ones that need to access super early or even qualify.

But rather than dismiss the argument out of hand, let’s consider when it might make sense.

The first is when it really is a last resort. While it’s easy to consider investing in ASX shares, many Aussies don’t have a lot of cash to spare right now.

That means that early access to super could be the difference between paying the bills or falling short. Similarly, superannuation could be the key to paying down high-interest debts.

Credit card interest rates can be well in excess of 30% per year. That means accessing some super to reduce that debt could be a smart move.

Aside from absolute need, it could make sense when purchasing a property. Assuming you were eligible, the early access of super could be a good idea to help reduce borrowing costs such as Lenders Mortgage Insurance (LMI).

This is more likely to apply to those looking at the First Home Super Saver (FHSS) scheme. If the present value of the super impact is less than what LMI would cost, it may make sense to access your super early.

Foolish takeaway

Overall, these things are going to come down to individual circumstances. 

I think it’s pretty clear that accessing your super early just to spend it on new toys or just blowing the cash is not a good financial decision.

However, if the numbers stack up or there are no other options, using the available early access mechanisms could make sense. It’s worth making sure that you meet the eligibility criteria either under the COVID-19 scheme or the FHSS.

That said, I’m still a big believer in the super system and think it’s wise to use superannuation as a long-term tool for retirement.

I think if you are going to withdraw from your superannuation, consider the market timing. Withdrawing when the S&P/ASX 200 Index (ASX: XJO) is plummeting could be a bad idea.

That means not only are you not realising future gains, but your super is already lowly valued.

More reading

• Is this the right time to be investing in the share market?
• 5 things to watch on the ASX 200 next week
• Why it’s a good time to buy and hold ASX shares
• These were the best performing ASX 200 shares last week
• ASX 200 falls 0.6%, REA Group reports

Motley Fool contributor Ken Hall 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 Does it ever make sense to access your super early? appeared first on Motley Fool Australia.

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If you are asking yourself if now is a good time to be investing in ASX shares, you are asking yourself the wrong question.

It’s understandable why would-be investors will be pondering this issue in this volatile COVID-19 environment and amid the unfolding reporting season.

But there are more important matters that newbies need to be focusing on instead of trying to time the market.

Timing the market vs. time in the market

The fact is, trying to time the market is usually a futile exercise. Experts often get this wrong, so what chances do amateurs have?

Further, lots of studies have shown that it isn’t timing but how long you remain invested that makes the biggest difference over the longer run.

As long as you can afford to put aside a regular amount every month, the time to invest is now!

But before you hit the “buy” button for the first time, you should at least have answers to the following questions.

What are my investment objectives?

Sounds like a basic enough question, but “making money” or “building wealth” aren’t the right answers.  Your objectives need to be more specific as it will influence how and where you invest.

The answer could be “to save for a deposit for a home in three years” or “provide for my retirement in 30 years”. The key here is to know what you are saving for and how long you have to achieve this.

The time component is critical. The longer you have to invest, the more risks you can take. This will help determine whether you should be more of a “growth” or “income” investor.

How much do I need to start investing?

It’s probably better to rephrase this common question to “how much do I need at the end?”. This gives you an idea of how much you need to start with, and how much extra you need to put in at regular intervals.

You can use the average compound annual growth rate (CAGR) of the S&P/ASX 200 Index (Index:^AXJO) as a benchmark. The 30-year CAGR is 8.9%, according to the Australian Financial Reivew.

But even if you don’t have enough to hit your target, you shouldn’t use that as an excuse not to save and invest for your future.

Having something is better than nothing and even if you can start with $1,000, it’s still worth doing. The only thing is that your investment strategy will have to suit your capital base. If you have only a small amount to invest, an ASX 200 ETF might be a better option than buying shares in one company only.  

Should I reinvest my dividends?

This is a question all investors should think about, including those buying “growth” stocks. Many larger cap growth stocks pay a dividend, albeit a modest one.

If you don’t need the dividends to cover your living expenses (and ideally you won’t), then the rule of thumb is to reinvest the dividends to benefit from the compounding effect.

Choosing stocks with a dividend reinvestment plan (DRP) would be the simplest solution for most retail investors. Just be aware that not all ASX stocks offer a DRP.

Happy investing fellow Fools!

More reading

• 5 things to watch on the ASX 200 next week
• Why it’s a good time to buy and hold ASX shares
• These were the best performing ASX 200 shares last week
• ASX 200 falls 0.6%, REA Group reports
• Why the Coca-Cola share price and these ASX stocks just got upgraded by brokers to “buy”

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

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 Is this the right time to be investing in the share market? appeared first on Motley Fool Australia.

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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Cochlear Limited (ASX: COH)

According to a note out of UBS, its analysts have retained their sell rating and $160.50 price target on this hearing solutions company’s shares. The broker expects Cochlear to report a sharp decline in profit in FY 2020 because of the pandemic. In addition to this, it appears concerned that FY 2021 could underwhelm as well due to rising coronavirus cases and the impact this may have on elective surgeries. And while it expects a rebound in unit sales once the pandemic passes, it doesn’t see enough value in its shares at this point to make any changes to its recommendation. The Cochlear share price ended the week at $189.14.

National Australia Bank Ltd (ASX: NAB)

A note out of the Macquarie equities desk reveals that its analysts have downgraded this banking giant’s shares to an underperform rating with a $17.50 price target. According to the note, the broker suspects that NAB’s overweight exposure to small businesses means it is at risk of being impacted more than most by loan deferrals. It fears this and the weak economic outlook could weigh on its short term earnings. The NAB share price last traded at $16.96.

ResMed Inc. (ASX: RMD)

Another note out of the Macquarie equities desk reveals that its analysts have retained their underperform rating but lifted their price target on this sleep treatment company’s shares to $20.00. According to the note, ResMed delivered a stronger than expected fourth quarter and full year result last week. However, this was due to ventilator sales because of the pandemic, which offset softer than expected mask sales. Looking ahead, Macquarie believes its near term outlook is a little challenging and its growth is unlikely to justify the premium its shares trade at $25.06.

More reading

• 5 things to watch on the ASX 200 next week
• These were the worst performing ASX 200 shares last week
• 3 outstanding ASX shares to buy in August
• Ready for the “80% stock market crash”?
• The latest ASX 200 stocks downgraded by top brokers

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 Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and 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.

The post Top brokers name 3 ASX shares to sell next week appeared first on Motley Fool Australia.

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Buying cheap stocks after the recent market crash may not be a priority for investors who are seeking to build a nest egg so they can retire early. After all, volatility continues to be high across the stock market, and a further downturn after the recent rebound cannot be ruled out.

However, the track record of the stock market shows that it is likely to return to a sustained bull market over the long run. Through buying a diverse range of shares now while they are cheap in many cases, you could generate higher returns than other assets and improve your financial prospects for retirement.

Investing in cheap stocks today

A risky future means that there continue to be many cheap stocks available despite the market’s recent rebound. History suggests that buying them now while they offer wide margins of safety, and holding them over the coming years, could be an effective means of obtaining impressive returns.

For example, major risks continued to be present in the aftermath of the global financial crisis. This caused many stocks to trade at low prices, with investor sentiment taking a substantial amount of time to improve. However, as an accommodative monetary policy gradually stimulated the world economy, the operating conditions facing businesses improved and their share prices recovered.

Although the same outcome cannot be guaranteed following the current economic crisis, the scale of fiscal and monetary policy stimulus in major economies suggests that a long-term recovery is likely. After all, the economy has always returned to growth following even its most severe recessions. As such, while risks remain, now could be the right time to capitalise on weak investor sentiment through buying cheap stocks.

Appeal versus other mainstream assets

Buying cheap stocks may not produce higher returns than other assets in the short run due to an uncertain economic outlook. However, over the long run assets such as cash and bonds may produce disappointing returns.

Low interest rates look set to remain in place for a sustained period of time. This could mean that fixed-income securities and cash fail to improve your spending power – especially since the scale of monetary policy stimulus being implemented in major economies has the potential to cause a rise in global inflation in the coming years.

Other assets such as property may also be relatively risky. It is much more difficult to build a diverse property portfolio than it is within the stock market due to factors such as the cost of homes.

As such, from a risk/reward perspective, cheap stocks could prove to be a superior means of obtaining an attractive risk/reward ratio for the long term. They may catalyse your financial prospects and help to improve your chances of enjoying an early retirement.

More reading

• Is this the right time to be investing in the share market?
• Top brokers name 3 ASX shares to sell next week
• Is the Vanguard Australian Share ETF the best long-term ASX investment?
• I’d take these 3 steps to get ready for another stock market crash
• 5 things to watch on the ASX 200 next week

Motley Fool contributor Peter Stephens 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 Investing in cheap stocks today can help you to get rich and retire early appeared first on Motley Fool Australia.

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Is the Vanguard Australian Share ETF (ASX: VAS) the best long-term ASX investment?

Vanguard Australian Share ETF is an exchange-traded fund (ETF) that is invested in around 300 ASX shares. Indeed, its aim is to track the S&P/ASX 300.

What is Vanguard?

Vanguard is an investment business like many others. However, there is a significant difference. The owners of Vanguard are the investors, it shares the profit with investors by lowering the costs as much as possible.

Lower costs is a great outcome because fees can be a big influence on the net returns. The lower the fee, the higher the net return.

Fees

The ETF has an annual management fee of just 0.10%, that’s one of the lowest-costing portfolio investment options for ASX shares.

That fee is so low that it barely reduces the overall return at all. There’s a chance it could go even lower as the ETF gets bigger and there are even more scale benefits.

Diversification

One of the main reasons to consider ETFs is that they offer really good diversification. Vanguard Australian Share ETF is invested in 300 ASX shares, though there is a large allocation to financials and resources shares. That’s not the most attractive diversification, particularly as the largest two sector allocations aren’t with areas with big growth potential like technology. 

Financials has a 26.9% allocation and materials has a 19.5% allocation. Healthcare is the only other sector with an allocation of more than 10% with a 12.2% holding.

Its top 10 holdings at 30 June 2020 were: CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ), Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), Macquarie Group Ltd (ASX: MQG) and Transurban Group (ASX: TCL).

However, I think as newer businesses, like Afterpay Ltd (ASX: APT), grow and become bigger influences on the index then Vanguard Australian Share ETF will become more appropriately diversified.

Returns

The ETF hasn’t been a very strong performer over the past decade, with Australia’s ASX blue chips struggling to generate meaningful shareholder returns with the Hayne royal commission and now COVID-19 hurting earnings.

Over the past decade Vanguard Australian Share ETF has returned an average of 8.2% per annum. The last five years have been even more disappointing with an average return per annum of 5.9%.

It’s particularly disappointing that most of the return over the past five years – 4.35% per annum – has just been the income paid by the ETF. There has been hardly any capital growth.

Distribution yield

ASX shares are known for being generous dividend payers. Vanguard Australian Share ETF has a distribution yield of 4.1% according to Vanguard, not including the franking credits, which would make the grossed-up yield above 5%.

That’s a solid yield considering the official RBA interest rate is just 0.25%. I’d rather receive dividends than get a tiny amount of interest from the bank account.

Is Vanguard Australian Share ETF a buy?

If you want a passive way to invest into ASX shares then I think this could be one of the simplest ways to do it. It’s a good way to almost match (less fees) what the ASX 300 index does. ASX shares have performed well over the decades.

However, I think there are plenty of diversified investment options that could offer better long-term growth. ASX banks like CBA, which are a big part of the index right now, offer little compound growth potential in my opinion, however I think an ETF like BetaShares Global Quality Leaders ETF (ASX: QLTY) could deliver long-term growth with the types of businesses that it’s invested in.

More reading

• 3 quality ETFs I’d buy for my portfolio
• How to turn $20,000 into $100,000 with ASX ETF shares
• Is it time to dollar-cost average into ASX shares?
• 5 simple steps to financial independence
• 3 tips for investing in ASX 200 shares for beginners

Tristan Harrison 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 owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO, Transurban Group, 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.

The post Is the Vanguard Australian Share ETF the best long-term ASX investment? appeared first on Motley Fool Australia.

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The recent stock market crash may have been followed by rapidly-improving investor sentiment, but a number of risks continue to face the world economy. For example, geopolitical tensions in Europe and the US, as well as continued growth in the number of coronavirus cases, could cause investor sentiment to weaken in the coming months.

As such, investors may wish to hold some cash so they can take advantage of buying opportunities. Through identifying the most attractive stocks available today, as well as reassessing your portfolio holdings, you may be able to build a solid portfolio of stocks for the long term.

Cash holdings

Having cash available to invest during a market crash can put any investor in an advantageous position. They may be better able to capitalise on low valuations that may prove to be temporary in nature.

As such, having some cash within your portfolio at the present time could be a shrewd move. As mentioned, a number of risks continue to face investors that could lead to a decline in stock prices. This could mean that avoiding being fully invested in shares provides the capacity to take advantage of buying opportunities, as well as peace of mind.

Clearly, holding cash for the long term is unlikely to produce desirable returns. However, having it on hand during periods of market volatility, and with the prospect of a second market crash on the horizon, may be a logical move.

Identifying attractive stocks ahead of a market crash

As was the case in the recent market crash, share prices can quickly rebound after a decline. This means that long-term investors may only have a short window of opportunity to take advantage of undervalued opportunities.

Therefore, identifying the stocks you are positive about prior to a decline for the stock market could be a sound move. It may enable you to react more quickly to a fall in share prices, since you are likely to know which companies in specific sectors may be worth buying when their prices include wide margins of safety.

Assessing your portfolio holdings

Similarly, assessing your portfolio holdings prior to a market crash could be a sound move. For many stocks, their outlooks have changed dramatically since the start of the year. As such, their investment appeal may have altered materially, which could mean that now is the right time to sell them in order to provide the opportunity to reinvest in stronger businesses should they trade at more attractive prices.

Of course, this does not mean that you should avoid a buy-and-hold strategy. Over time, the stock market is likely to recover from any future market crash. But by holding the most attractive stocks from a risk/reward standpoint, you can generate high returns in the long run.

More reading

• Is this the right time to be investing in the share market?
• Top brokers name 3 ASX shares to sell next week
• Investing in cheap stocks today can help you to get rich and retire early
• Is the Vanguard Australian Share ETF the best long-term ASX investment?
• 5 things to watch on the ASX 200 next week

Motley Fool contributor Peter Stephens 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 I’d take these 3 steps to get ready for another stock market crash appeared first on Motley Fool Australia.

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