How much do you think you would have now if you had invested $5,000 into the share market each year since 1990?

That’s a total of $150,000 invested over a 30-year period. Maybe it would be worth $250,000 now? Or perhaps even half a million?

Well, you might be surprised to learn that if you earned the market return of 9.5% per annum, you would have generated even more wealth. Today, these investments would be worth approximately $825,000.

I believe this demonstrates how rewarding it can be to invest consistently over a long period.

With that in mind, I have picked out three top ASX shares which I believe would be great options for your first $5,000 investment:

Bubs Australia Ltd (ASX: BUB)

I think Bubs could be a good option for a $5,000 investment. It is an infant formula and baby food company which has been growing at a rapid rate. This has been driven by its expanding distribution footprint in Australia and increasing demand in the Asia market. The good news is that its distribution footprint has just expanded further and demand in China is accelerating. I believe this bodes well for its future earnings growth.

Freedom Foods Group Ltd (ASX: FNP)

Another ASX share to consider investing $5,000 into is Freedom Foods. It is a diversified food company with a focus on healthy eating. Its shares have fallen heavily this year after the pandemic hit a number of its sales channels hard. I believe these headwinds are only temporary and investors ought to take advantage of its share price weakness to buy shares. Especially given its very positive long term earnings growth outlook thanks to increasing demand for UHT dairy products, plant beverages, and cereals and snacks.

ResMed Inc. (ASX: RMD)

A final option for a $5,000 investment is ResMed. I believe the medical device company can continue growing its earnings at a solid rate for some time to come. This is thanks to its exposure to a sleep treatment market growing quickly due to the proliferation of sleep apnoea. I think ResMed will be one of the biggest winners in the market because of its high quality masks and software solutions.

More reading

• What ASX shares should you invest in during a bull market?
• 3 ASX shares to buy and hold for the 2030s
• 3 quality ASX shares to buy and hold for decades
• Have $10,000? This is where I’d invest it into ASX shares
• Here’s why long term investing can outperform shorter holding periods

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 BUBS AUST FPO. The Motley Fool Australia has recommended BUBS AUST FPO, Freedom Foods Group Limited, 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.

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It’s hard to know where to invest in ASX shares right now. The S&P/ASX 200 Index (ASX: XJO) has roared back to life after the bear market slump in February and March.

There’s so much uncertainty around the economy with monetary and fiscal policy fighting against the impending Aussie recession.

With all that’s going on, here’s where I’d be looking to invest $2,500 right now.

How to invest $2,500 in ASX shares today

I’m a big believer of the old mantra, ‘time in the market beats timing the market’. Essentially this means that you shouldn’t overthink the current market if you’re investing for the long-term.

The ASX 200 has historically trended upwards which is good news for buy and hold investors.

I think buying high-quality ASX shares is the key to long-term wealth.

This means I’m looking at some of the good value, blue chip shares today. For instance, the BHP Group Ltd (ASX: BHP) share price is one I’ve got my eye on.

BHP shares have fallen lower in 2020 but could be due for a rebound. Strong commodity prices may persist for the rest of 2020 and beyond if we see a global infrastructure boom.

That’s good news for the ASX mining share and its earnings. But it’s not just the mining sector that could be set to gain this year.

It’s hard to ignore the healthcare sector amid the coronavirus pandemic. Healthcare companies generally have non-cyclical earnings and some defensive exposure is often a good thing.

This means I’d be looking at an ASX healthcare share like CSL Limited (ASX: CSL).

CSL shares have slumped below the $300 per share mark in recent weeks. This could present a buying opportunity if you’re bullish on the Aussie biotech’s long-term success.

I think CSL has a strong research and development pipeline as well as a competitive advantage in both its influenza vaccinations and blood plasma segments.

This could mean the ASX healthcare share is due for a rebound back towards the $300 mark and beyond in 2020.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week
• How mum and dad investors are beating fund managers at their own game
• Why dividend shares aren’t quite as good as you’d think
• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?

Ken Hall 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 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 Where I’d invest $2,500 in ASX shares today 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:

ASX Ltd (ASX: ASX)

According to a note out of Goldman Sachs, its analysts have retained their sell rating and $64.08 price target on this stock exchange operator’s shares. The broker continues to believe that ASX Ltd’s shares are overvalued at the current level following the release of its May update last week. Especially after futures volumes were down sharply for a second month in a row. The ASX Ltd share price ended the week at $87.03.

Magellan Financial Group Ltd (ASX: MFG)

A note out of Morgan Stanley reveals that its analysts have retained their underweight rating and $40.00 price target on this fund manager’s shares. This follows the release of Magellan’s May update which revealed sizeable institutional fund outflows. In light of this outflow, it has concerns over the premium its shares trade at and fears that they could de-rate if funds inflows slow. The Magellan share price last traded at $58.00.

Nufarm Limited (ASX: NUF)

Analysts at Morgans have downgraded this agricultural chemicals company’s shares to a reduce rating with an improved price target of $4.76. According to the note, the broker has concerns over the impact the pandemic is having on its fourth quarter performance. It notes that this has created a lot of near term uncertainty for its earnings. And while it believes its balance sheet is robust, it isn’t enough to prevent a downgrade to a reduce rating. Nufarm shares were changing hands for $4.93 at the end of last week.

More reading

• Top brokers name 3 ASX 200 shares to buy next week
• How mum and dad investors are beating fund managers at their own game
• Why dividend shares aren’t quite as good as you’d think
• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• Invest like Warren Buffett with these ASX 200 shares

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 Top brokers name 3 ASX 200 shares to sell next week appeared first on Motley Fool Australia.

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Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

BHP Group Ltd (ASX: BHP)

According to a note out of Goldman Sachs, its analysts have retained their buy rating and lifted their price target on this mining giant’s shares to $37.80. The broker lifted its price target to reflect higher than expected iron ore prices. In addition to this, it notes that BHP has a strong balance sheet and could use this for share buybacks or value-accretive acquisitions. It also likes the miner due to its strong free cash flow generation and high returning green/brownfield projects. I agree with Goldman Sachs and would be a buyer of its shares.

National Australia Bank Ltd (ASX: NAB)

Analysts at UBS have upgraded this banking giant’s shares to a buy rating with an improved price target of $20.50. According to the note, the broker believes that the outlook for the banks is not as bleak as it looked just a few weeks ago. In light of this, it sees value in NAB’s shares after they underperformed the market during the crisis. I agree with UBS and think NAB and the rest of the big four banks look good value at present.

Qantas Airways Limited (ASX: QAN)

A note out of Morgan Stanley reveals that its analysts have retained their overweight rating and $5.20 price target on this airline operator’s shares. This follows an announcement by Qantas that its domestic capacity could be back to upwards of 40% of pre-pandemic levels by the end of July. It also notes that there is speculation that international travel between Australia and New Zealand could commence from next month. This would be a positive. As long as there is no second wave, I think Qantas could be a good option for investors.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• How mum and dad investors are beating fund managers at their own game
• Why dividend shares aren’t quite as good as you’d think
• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• Invest like Warren Buffett with these ASX 200 shares

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 Top brokers name 3 ASX 200 shares to buy next week appeared first on Motley Fool Australia.

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Retails investors can give themselves a pat on their back as they are outperforming most fund managers in the COVID-19 rebound!

The S&P/ASX 200 Index (Index:^AXJO) made a stellar 32% bounce since the bear market trough 11 weeks ago and most of the gains were reaped by everyday investors.

It’s the so-called “smart money” that have been playing catch-up as they were bracing for a second sell-off that never came.

Right warning, wrong timing

Remember back in early May when ASIC issued an usual warning to mum and dad investors? The market regulator was alarmed to see a spike in new and dormant trading accounts springing up and cautioned them about the likelihood of losing money.

“Even market professionals find it hard to ‘time’ the market in a turbulent environment, and the risk of significant losses is a regular challenge,” said ASIC.

“For retail investors to attempt the same is particularly dangerous, and likely to lead to heavy losses – losses that could not happen at a worse time for many families.”

Lion’s share of the gains

This is very sound advice and there may be some retail investors who have lost big during the market turmoil.

But there’s little doubt it’s retail investors that have been backing the V-shape recovery in our market while fund managers sat on their hands.

I don’t have the data to prove this, but there is enough anecdotal evidence to suggest this is true – and it isn’t only happening here.

US retail investors are laughing too

Retail investors in the US have also been jumping head first into the market. Bloomberg reported that retail brokerages, including Charles Schwab Corp. and TD Ameritrade Holding Corp., posted record account sign-ups and trading volume.

All this while the S&P 500 was surging over 40% from its bear market bottom in on March 23.

Call it dumb luck, but retail investors here and in the US couldn’t have timed their entry any better!

Buying the bottoms and selling the tops

I have been actively buying the market since speculating at the end of March that we may have seen the worst of the sell-off.

But the purpose of this article isn’t self-congratulatory. There are a few important takeaways from this experience.

For one, ASIC is right to warn investors not to try to time the market – and this probably applies to fund managers too.

The right strategy for those with a longer investment horizon is to stay invested in the market and to buy when you believe there is value, as opposed to worrying about whether there’s another shoe that will drop.

No one can consistently buy the bottom and sell the tops. Making this your ultimate goal will drive you crazy.

Should you be day trading?

Unless you know what you are doing, trading in and out of the market will often leave you nursing losses as over 80% of short-term and day traders get wiped out in the first two years of starting.

For those first timers who are lucky enough to make a killing in this new bull market, they should get educated about the market quick. Pay to attend courses and read up on managing risks. Avoid the free seminars as there’s usually a reason why they are free.

Most of all, don’t over extend yourself. You know you are in this camp if you can’t pay your bills or feed yourself if the market suddenly turns.

Tips for dips

Finally, don’t be afraid to buy the dips. The fact that many fund managers have been slow to buy into this new bull market means there’s a lot of cash sitting on the sidelines waiting for opportunities.

This doesn’t mean we won’t get a market correction of up to 10%, but after such a big jump, we are very unlikely to be retesting our March 23 lows.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week
• Why dividend shares aren’t quite as good as you’d think
• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• Invest like Warren Buffett with these ASX 200 shares

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Follow 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 How mum and dad investors are beating fund managers at their own game appeared first on Motley Fool Australia.

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I think it’s fairly safe to say that most ASX investors love a good dividend share, particularly those that offer franking credits. The unique way our tax system is structured makes it very attractive for ASX shares to pay dividends to investors. Over time, this has led to most ASX companies adopting a dividend payout policy, even if they’re still very much in their ‘growth phase’.

We can see this reflected in the yields that an S&P/ASX 200 Index (ASX: XJO) fund provides. Let’s take the iShares Core S&P/ASX 200 ETF (ASX: IOZ). It has a trailing yield of 4.51% on current prices, which also comes with some franking credits.

By comparison, a US-based index fund like the iShares S&P 500 ETF (ASX: IVV) currently offers a trailing dividend yield of just 1.94%, with no franking credits in tow.

No brainer, right?

Well, maybe.

What’s wrong with ASX dividend shares?

Dividends are great – I love them myself. But perhaps dividend income isn’t quite as good as it initially seems.

Let’s look at 2 hypothetical companies.

Company A and Company B both make $1 in earnings per share. That’s $1 a shareholder of both Company A and Company B is entitled to as a part owner.

But let’s say both companies can achieve an internal Return on Invested Capital (ROIC) of 15%.

If company A retains its earnings and reinvests that $1 back into the company, it should be able to provide $1.15 of earnings per share in the following year. Since it is reinvesting this money, it’s not subject to corporate taxes. As such, shareholders of Company A get the benefit of an untaxed profit of 15 cents per share that is now compounding and working to create even more wealth in the future.

The real cost of a dividend

By Contrast, Company B instead pays out half of its earnings as a dividend of 50 cents per share. It then reinvests the remaining 50 cents per share back into the business. Thus, Company B owners are getting 50 cents per share in dividend income and can expect 57.5 cents in earnings per share the following year.

But given that 50 cents per share is being paid out of profits, this money must first be subjected to corporate tax. Afterward, the dividends will come with a receipt that tax has been paid, commonly known as a franking credit. This franking credit enables the dividend not to be taxed again as income when received by its shareholders.

But it is still taxed money, even if only taxed once. The point here is that Company A shareholders can expect  $1.15 in earnings the following year, on which no tax is payable. Company B shareholders can expect $1.075 in earnings the following year, half of which will be taxed.

Over time, this gap in earnings power will widen, making one group of shareholders a lot wealthier than the other. And all because Company B is paying out half its profits while Company A is reinvesting them.

Sure, Company B shareholders are getting some income on the side, but this income is coming at a cost. Unless you can reinvest your dividends for a return greater than 15% per annum, you’re losing out.

Foolish takeaway

Everything comes at a price, and dividend income is no different. So if you’re swooning over how great dividend shares are, have a think about what your company might be giving up to fund paying you these dividends. Or find companies that can manage both growth and funding a dividend.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week
• How mum and dad investors are beating fund managers at their own game
• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• Invest like Warren Buffett with these ASX 200 shares

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 dividend shares aren’t quite as good as you’d think appeared first on Motley Fool Australia.

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Do you want to replace your entire wage with dividends? It’s definitely possible to do it with ASX dividend shares.

I think having excess cash in the bank making interest at less than 1% just seems like a missed opportunity.

Before the coronavirus, wage growth was low and switching jobs seemed like the only way to get a good wage increase. These days ASX dividend shares may be the best way to boost your income.

The type of ASX shares that you could be looking at depends on how much dividend income you’re trying to make and how quickly.

You need to replace your wage fairly soon

You could be at a stage in life where retirement is coming up soon. Perhaps you are in a physical job and you won’t be able to do that for much longer. If this kind of situation describes you then high dividend yields could be the answer. But whatever you pick still needs to have a bit of potential growth too.

If you’re at retirement age and you aren’t rolling in money, you could be eligible for the pension or part pension which could help supplement your income needs.

Maybe you have $100,000 or $200,000 to invest to boost your income. The overall ASX share market is not a bad option for dividends, with a long-term investment in Vanguard Australian Shares Index ETF (ASX: VAS). The UK share market also has a solid dividend yield, which we can access through Betashares FTSE 100 ETF (ASX: F100)

There are also some listed investment companies (LICs) with big dividend yields like WAM Research Limited (ASX: WAX) and Naos Emerging Opportunities Company Ltd (ASX: NCC). Both of these LICs have grossed-up dividend yields of more than 9% and have paid reliable dividends over the past several years. They both look at smaller shares which have more growth potential than blue chips. A $100,000 portfolio with a 9% dividend yield makes $9,000 a year before accounting for income tax.

You have longer to replace your wage

You may not have an urgent need to build your income. In that case it’s probably better to go for ASX dividend shares that have good yields but are still generating growth over the long-term.

ASX blue chips like Wesfarmers Ltd (ASX: WES) and Macquarie Group Ltd (ASX: MQG) have been two good options that combine dividends and growth. Real estate investment trusts (REITs) like Rural Funds Group (ASX: RFF) are also solid income options. Infrastructure shares such as APA Group (ASX: APA) can also be reliable dividend payers.

However, some of the best ASX dividend shares could be ideas that have a solid starting yield, keep growing their dividend and can make capital gains over the long-term.

I’m thinking about shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Magellan Global Trust (ASX: MGG), WAM Microcap Limited (ASX: WMI), Future Generation Investment Company Ltd (ASX: FGX) and Brickworks Limited (ASX: BKW).

Foolish takeaway

I’m aiming to replace my work earnings with dividends over time with many of the businesses I’ve named above. The younger you are the easier it is to plan ahead for your portfolio and benefit from compound interest. It just takes time. Plan ahead to replace your earnings. I think a monthly investment plan is a good routine. Eventually you’ll reach excellent wealth and dividends.

More reading

• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• 3 ASX dividend shares for retirees
• 3 ASX shares for a beginner’s portfolio
• Are Macquarie Group shares worth investing part of $3,000 into this June?
• ETFs I’d pick to build a passive portfolio

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, MAGLOBTRST UNITS, RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, Macquarie Group Limited, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA 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.

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The 2020 stock market crash has caused many investors to experience significant paper losses on their portfolios. In the short run, further declines cannot be ruled out due to the possibility of a second wave of coronavirus and its potential impact on the world economy.

However, now could be the right time to buy high-quality stocks while they trade on low valuations. By adopting a long-term view and reinvesting dividends received where possible, you could capitalise on the recent market crash to increase your chances of making a million.

A long-term view

As mentioned, the short-term prospects for the stock market are highly uncertain. Previous bear markets have included brief market rallies that have not lasted for a sustained period of time. Therefore, while many stocks have risen from their recent lows, there is the potential for them to deliver disappointing returns in the coming months.

As such, adopting a long-term view towards your stocks could prove to be a highly worthwhile move. The stock market’s past performance shows that it often has periods of negative growth, but in the long run it has historically delivered relatively high returns compared to other mainstream assets.

By accepting that your investments could experience difficult periods over the short run, and allowing them the time they need to deliver high returns, you could increase your portfolio’s growth rate.

Focusing on value

It can be tempting to simply buy the cheapest stocks you can find in a market crash. However, some industries and businesses may fail to make a comeback from the current difficulties they are facing. They may, for example, have high debt levels or be void of a clear competitive advantage over their peers.

Therefore, it is important to consider the quality of a business, as well as its price, before buying it. In doing so, you can unearth the best value stocks that are on offer. They may be better placed to survive the upcoming economic challenges facing the world economy, as well as deliver a strong recovery relative to their peers over the long run.

Reinvesting dividends

A large proportion of the stock market’s historic total returns have been derived from the reinvestment of dividends. Therefore, reinvesting your income returns whenever possible following the recent market crash could boost your chances of making a million.

With many stocks currently trading on low valuations following their recent declines, now could be an opportune time to make use of your dividend income stream through buying high-quality stocks at low prices. You may even wish to reinvest in your existing holdings through an automated dividend reinvestment service. Over time, this could lower your average purchase price and enable you to benefit to a greater extent from the stock market’s likely long-term recovery.

More reading

• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• Invest like Warren Buffett with these ASX 200 shares
• 3 ASX dividend shares for retirees
• 3 ASX shares for a beginner’s portfolio
• Is 2020 a good time to get a credit card?

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 2020: 3 steps I’d take to make a million appeared first on Motley Fool Australia.

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