It’s easy to lose sight of the buy and hold investment strategy when markets are volatile. In the March bear market, everyone felt like they were Warren Buffett. Never mind the fact they may have been relatively indifferent investors in February, right throughout 2019 or in the years prior.

All of a sudden passive investors became active. Everyone was looking for bargains, but did it really pay off?

Why a buy and hold investment strategy is best

Let’s be clear: day trading is just gambling on ASX shares. If you buy Afterpay Ltd (ASX: APT) shares and hold them for a day or two, you may see some gains. However, I think a lot of those gains would be lost to transaction fees and taxes. 

In contrast, a buy and hold investment strategy makes sense. You’re not just buying ASX shares, you’re investing in high-quality companies for the long-term. That means understanding the companies you own and believing in their long-term success. The CSL Limited (ASX: CSL) share price could go up or down this week, but I believe it will go up over time.

A recent article in the Australian Financial Review (AFR) highlighted this increase in active investing resulting from COVID-19. The article references ASIC data from February and March indicating an increase in the level of retail investors’ trading. Everyone was ducking in and out of ASX shares like Webjet Limited (ASX: WEB) as valuations soared and crashed. But this represents a form of market timing (which doesn’t work!). Many speculators would have been burned while buy and hold investors rode the market down and back up again in April and May.

Furthermore, I think day trading is pretty stressful. If I’m sitting at my desk watching ASX share prices all day, I’d probably get pretty twitchy! In contrast, you can live relatively stress-free if you buy and hold a diverse portfolio of ASX shares. If you have spread your risk through a number of quality ASX shares or even a simple ETF like Vanguard Australian Shares Index ETF (ASX: VAS), you can, for the most part, sit back and relax.

Foolish takeaway

Simply put, a buy and hold investment strategy works. If you hold your assets for less than 12 months, 100% of your gains are subject to capital gains tax (CGT). If you’re in the top tax bracket, this means you could lose 45% of your short-term trading gains.

On top of that, you pay brokerage every time you enter and exit a trade. This can quickly crush any gains you made in short-term buys like Afterpay or Nextdc Ltd (ASX: NXT).

However, investing for the long-term means your risk and returns are spread out. For me, I’d rather sleep peacefully at night with confidence in my buy and hold strategy than toss and turn over short-term ASX share bets in a volatile market.

More reading

• Should you invest in super or your ASX share portfolio?
• Are these China-exposed ASX shares in danger in 2020?
• Brokers name 3 ASX 200 shares to buy today
• Why Qantas, Webjet and these ASX travel shares are dropping lower today
• ASX 200 up 0.8%: Big four banks push higher but Xero tumbles lower

Ken Hall owns shares of Vanguard Australian Shares Index. 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 Webjet Ltd. 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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Should you invest in ASX shares for income?

The RBA interest rate is now so low it’s almost impossible to generate meaningful income from a savings account or term deposit.

If someone has a large sum of money in the bank – millions – then a bank account may generate enough interest. But otherwise you’re eating into your capital. Long gone are the days of earning over 5% in a completely safe way.

That’s one of the main things to remember about money in the bank compared getting income from ASX shares. Bank accounts are extremely low risk. If you don’t like the idea of your capital being exposed to volatility then the share market may not be appropriate for you.

However, if you invest wisely and can just view market volatility as a short-term feature rather than a long-term problem, then investing in ASX shares for income could be a good idea .

But it could be a good idea to still hold onto some of the cash and just invest what you need to get the required income level.

The coronavirus market decline could be a good time to invest and get higher long-term dividend yields.

Here are some of the ASX shares that could be considered for income

WAM Research Limited (ASX: WAX), the listed investment company (LIC), has a grossed-up dividend yield of 11.1%. It has increased its dividend every year since the GFC.

Brickworks Limited (ASX: BKW), the diversified property business, has a grossed-up dividend yield of 6.4%. It hasn’t cut its dividend for four decades.

Duxton Water Ltd (ASX: D2O), the water entitlement business, has a forward grossed-up dividend yield of 6.3%. It has projected dividend growth for the next two years.

Rural Funds Group (ASX: RFF), the farmland real estate investment trust, has a FY21 distribution yield of 6%. It aims to increase its distribution by 4% each year.

Out of the above four ASX share ideas for income I’d probably buy Brickworks and Duxton Water first for their discounts to the assets.

More reading

• Get paid huge amounts of cash to own these ASX dividend shares
• Take advantage of ASX share market volatility
• 3 top ASX 200 shares every investor should buy
• Looking for dividend income? Try these 3 ASX shares
• 1 of my favourite dividend shares just forecast growing dividends to March 2022

Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended Brickworks and RURALFUNDS STAPLED. The Motley Fool Australia has recommended DUXTON 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.

The post Should you invest in ASX shares for income? appeared first on Motley Fool Australia.

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