Author: therawinformant

Exchange-traded funds (ETFs) are a great way to grow your wealth over the long-term.

It’s better to hold onto investments for the long-term than constantly shift your investment holdings. With ETFs you are usually investing in a diversified group of shares at a low cost. ETFs are a great way to invest for most people’s portfolios.

If I had $25,000 to invest into three ETFs, these are the ones I’d choose:

BetaShares Global Quality Leaders ETF (ASX: QLTY) – $10,000

Over the longer-term it’s the quality businesses that have the best chance of delivering good returns.

This ETF is invested in global businesses which rank highly on quality metrics. Those metrics are return on equity, debt to capital, cash flow generation ability and earnings stability. If shares display good performance on each of these metrics then it would be hard for them not to produce good returns.

BetaShares provides this ETF for a cost of just 0.35% per annum, which is cheap compared to most fund managers out there. The lower the management fee the more returns that are left in the pocket of investors.

What shares count as high quality? Its top holdings include Nvidia, Adobe, Apple, Accenture, Intuit, Facebook, Vertex, Alphabet and L’Oreal.

It has performed well since inception in November 2018 with net returns of 19.76% per annum. Past performance is definitely not a guarantee of future performance, but it shows how well ‘quality’ can perform even during the COVID-19 pandemic.  

BetaShares Global Sustainability Leaders ETF (ASX: ETHI) – $10,000

Some investors may want to invest with an ethical screening process. It can be a lot of work to try to identify which individual businesses are operating in ways that you agree with. This ETF offers investors a good portfolio of shares that have been through a thorough ethical screening process.

It invests in businesses that have been identified as climate leaders that have also passed screens to exclude companies with significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investing. Some examples of exclusions are gambling, tobacco and alcohol businesses.

Which global shares make it into the ETF as ethical? It owns around 200 names. Its top holdings include: Apple, Nvidia, Mastercard, Visa, Adobe, Home Depot, Paypal, Netflix and Toyota.

I think it’s a good sign that Apple, Nvidia and Adobe are three of this ETF’s top holdings because they also qualified as ‘quality’ businesses in the first ETF I mentioned.

Over a third of this ETF (36.3%) is allocated to IT and it has an annual management fee of 0.59%. Those are two pleasing factors that I like to see for potential strong net returns.

The net returns have indeed been very strong. Since inception in January 2017 this ETF has generated a net return of 20.7% per annum.

Investors haven’t sacrificed returns by investing in this ETF.

BetaShares FTSE 100 ETF (ASX: F100) – $5,000

UK shares wouldn’t seem like an obvious place to invest, but I think there are several good reasons to think about businesses on the London Stock Exchange.

With this ETF you get exposure to the 100 biggest companies listed in London. Many of the holdings are global giants with earnings from all over the world. 

Its top 10 holdings are: Astrazeneca, GlaxoSmithKline, HSBC, British American Tobacco, Diageo, BP, Royal Dutch Shell, Rio Tinto, Reckitt Benckiser and Unilever.

The ETF offers good diversification. The main reason I chose it with my theoretical $25,000 money was for the dividend yield. At the end of May 2020 the underlying dividend yield was 5.8%. That’s a solid starting yield from an ETF which has global earnings. The other two ETFs I mentioned don’t have big dividend yields. So this investment would boost a portfolio’s overall year.

Its annual management fee is 0.45%, which isn’t bad at all.

Foolish takeaway

I really like each of these ETFs, particularly the ethical and quality ones. I’d be quite happy for one of those two ETFs to be my only investment because they each own over 100 quality shares. At the current prices I’d probably go for the quality ETF. 

More reading

• 3 ASX shares that I’d invest $1,000 into EVERY month
• Starting to invest with $500? Here are 2 ASX shares
• Do you have $1k to invest? Buy 1 of these ASX shares
• 2 ETFs for easy investing and good returns
• I don’t normally buy ETFs, but I would buy these 2

The post Where I’d invest $25,000 into 3 ETFs appeared first on Motley Fool Australia.

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Buying dividend shares to make a passive income may seem to be a risky move after the stock market’s recent crash. However, a lack of appeal from other income-producing assets such as cash and bonds may mean that dividend shares offer an impressive long-term outlook.

Furthermore, with many income stocks offering dividend growth potential as the world economy recovers, they could produce attractive total returns when purchased as part of a diverse portfolio of equities.

Relative appeal

The uncertain outlook for the world economy may mean that the yields available on dividend shares are relatively attractive. Low interest rates could be set to remain in place over the coming years as policymakers seek to offer support to the economy. The result may prove to be low income returns from assets that would normally form part of an income investor’s portfolio, such as cash and bonds.

In fact, the returns from cash and bonds could prove to be lower than inflation in some cases. This may reduce your spending power and make the task of generating a passive income more challenging over the long run.

Dividend growth potential

As well as offering a higher income return in the current year than cash and bonds, dividend shares may offer a growing revenue stream over the long run.

Certainly, many industries face an uncertain period at the present time. Factors such as rising unemployment and weak consumer confidence across many of the world’s major economies may cause challenging trading conditions that result in lower dividends than would normally be the case.

However, over the long run the track record of the world economy shows that it has been successful in overcoming its difficult periods to post positive growth. Therefore, the chances of dividend growth returning over the coming years appears to be high – even in industries that are currently facing weak operating conditions due to the coronavirus pandemic.

Dividend growth could further enhance your passive income in the long run. It may also make the difference in returns between dividend shares and other income-producing assets much wider, since low interest rates may remain in place over the next few years to stimulate the economy.

A diverse portfolio of dividend shares

Buying a range of dividend shares could be a means of reducing your risks and producing a more reliable passive income. Having exposure to different economies and a range of sectors can lower your reliance on a small number of companies from which to generate a regular passive income.

With the cost of buying shares now lower than it ever has been, it could be a good time to spread your capital across a variety of dividend shares. It could lead to high income returns, as well as dividend growth as the world economy gradually recovers

More reading

• Where I’d invest $25,000 into 3 ETFs
• The market is going long on the Afterpay share price but shorting its weaker rival
• Forget gold and Bitcoin. I’d buy cheap stocks today and hold them for 10 years
• Why I would put excess funds into ASX dividend shares instead of a savings account
• 3 exciting ASX growth shares to buy and hold until 2030

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 Stock market crash: I’d buy dirt-cheap dividend shares today to make a passive income appeared first on Motley Fool Australia.

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It looks like nothing can touch our largest BNPL superstar as the Afterpay Ltd (ASX: APT) powers from one record high to another. But the bears are going after its smaller rival in a big way.

The death-defying Afterpay share price famously shot up from its COVID-19 market low of $8.90 back in March to $72.31 on Friday.

You might think that such a meteoric rise would bring out the short-sellers, but the opposite seems to have happened.

Afterpay beats the short-sellers

Short-sellers are those who are betting on a fall in the share price. They borrow stock to sell on market with the aim of buying it back at a lower price later to profit from the difference.

These traders were certainly active in Afterpay in the wake of the coronavirus pandemic but they seem to be largely wiped out by the unexpected eight-fold surge in this ASX tech darling.

Short-interest (the percentage of shares that’s shorted) was standing at around 5% during the darkest moments of the latest bear market. This dropped significantly to 1.26% in the latest ASIC as of July 6 (the data is always a week behind).

In fact, just in the last month alone, short-interest in Afterpay dipped 64 basis points (bps). But these bearish traders aren’t giving up the fight yet.

Short-sellers new ASX target

They are instead going after its weaker rivals as the buying frenzy in Afterpay infected all other ASX shares claiming to be in the BNPL (buy now, pay later) space.

The new favourite whipping boy for short-sellers is the FlexiGroup Limited (ASX: FXL) share price. Short-interest in the stock jumped a whopping 324 bps to 6.42% over the past month.

This is the largest increase of all ASX stocks and probably reflects the market’s scepticism about its ability to join in the frenzy.

For those who can remember, FlexiGroup and Thinksmart were the original “BNPL” companies long before anyone knew what those four letters meant.

The short and the long of it

Given that the proportion of FlexiGroup shares being shorted is still reasonably small compared to others like Myer Holdings Ltd (ASX: MYR) at over 12%, there is still room for short-sellers to step up the pressure.

If you are wondering about other BNPL stocks, short-sellers are also retreating from the Zip Co Ltd (ASX: Z1P) with short-interest in the stock falling 153 basis points to 5.6% in the past month.

The Splitit Ltd (ASX: SPT) share price also recorded a dip of 22 bps to 0.39% and the Sezzle Inc (ASX: SZL) is left unmolested by shorters.

Down but not out

However, don’t think short-sellers have lost the war. They may be in retreat now but I’m pretty sure they will be having another go as some experts believe the BNPL sector is a bubble.

If US tech megastar Tesla Inc (NASDAQ: TSLA) can face a record US$20 billion short position against it, Afterpay and friends should expect the naysayers to be back in force.

More reading

• 3 exciting ASX growth shares to buy and hold until 2030
• How I’d build a $100,000 share portfolio with ASX ETFs
• Here are the top 5 ASX tech shares on the All Tech Index
• What does COVID-19 and the payment revolution mean for Afterpay and Sezzle?
• ASX 200 drops 0.6%, Afterpay hits a new record

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

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. The Motley Fool Australia has recommended FlexiGroup Limited and Sezzle 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 The market is going long on the Afterpay share price but shorting its weaker rival appeared first on Motley Fool Australia.

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Buying cheap stocks after a market crash is a challenging process for many investors. After all, stock prices can remain volatile for a sustained period of time after a market downturn. They may produce paper losses that can cause worry among investors.

However, the long-term track record of the stock market suggests that buying undervalued shares today and holding them for a decade is likely to produce high returns.

As such, avoiding popular assets such as gold and Bitcoin to purchase cheap stocks could be a shrewd move even while the stock market continues to be volatile.

Relative appeal

Buying cheap stocks may not produce higher returns than gold and Bitcoin in the short run. Gold, for example, may experience further capital growth due in part to its status as a store of wealth. Investor demand for the precious metal may increase if the global economic outlook weakens, and investors adopt an increasingly risk-averse stance regarding the assets they hold.

However, over the long run the return prospects for gold could be relatively disappointing. Investor sentiment is likely to improve, which could make riskier assets such as equities more attractive. And, with gold trading close to an all-time high after its gain since the start of 2020, it may lack capital return potential over the next decade.

Likewise, Bitcoin may be seen by some investors as a means of differentiating a portfolio. However, its long-term prospects are exceptionally difficult to predict due to its lack of fundamentals and dependence on investor sentiment to determine its price. With a limited size and potential regulatory challenges ahead, Bitcoin’s risk/reward ratio may prove to be somewhat unattractive relative to undervalued stocks.

Buying cheap stocks

Purchasing cheap stocks and holding them for a long time period, such as ten years, has been a worthwhile means of generating high returns in the past. Bargain shares do not necessarily reflect the quality of a company, since investor sentiment can be weak for a variety of reasons.

For example, at the present time some stocks may be viewed by investors as unattractive simply because of the uncertain future facing the world economy. They may have solid balance sheets, sound strategies and wide economic moats that provide a high chance of surviving the global economic crisis, as well as generating improving profitability in the long run. However, because of weak investor sentiment towards the wider stock market, they offer low valuations.

Through buying high-quality companies while their stock prices are low, it is possible to capitalise on the stock market’s recovery prospects. The stock market has always experienced a market rally after its downturns in the past, and is likely to experience a similar outcome following the current challenges facing the world economy.

Fiscal and monetary policy stimulus mean that stock prices could experience a sustained bull market, which means that now could be the right time to buy a diverse range of cheap stocks and hold them for the next decade.

More reading

• Why I would put excess funds into ASX dividend shares instead of a savings account
• 3 exciting ASX growth shares to buy and hold until 2030
• Where I would invest $5,000 into ASX shares in July
• Dollar cost averaging and how to use it to invest in ASX shares
• 2 ASX shares for strong retirement income

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 Forget gold and Bitcoin. I’d buy cheap stocks today and hold them for 10 years appeared first on Motley Fool Australia.

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