Tag: Motley Fool Australia

The new $688 million grant to stimulate the construction sector is a fillip to a handful of ASX stocks and will add to the euphoria on the market.

The S&P/ASX 200 Index (Index:^AXJO) is set to break above 6,000 points this morning thanks to a strong lead from Wall Street and the federal government’s housing boost that was unveiled last night.

But how much of a boost the new grant can provide remains to be seen as there are a number of disappointing features in the new scheme.

Low end of scale

For one, the $25,000 cash handout is at the low end of estimates. There was speculation that the grant would range between $20,000 and $40,000, with some commentators even tipping it could go higher.

The not as bad as expected GDP figure for the March quarter and early signs of an economic recovery from the COVID-19 shutdown may have persuaded the Morrison government from being so generous.

There are also questions about whether the policy is well targeted or will make as much of a difference to the economy as it could.

Who qualifies for the housing grants?

The grant, which is aimed at protecting construction jobs, can be used by eligible households to renovate or build new homes.

To qualify, singles cannot earn more than $125,000 and couples not more than $200,000 in FY19, according to The Guardian.

The new home that is being built must be used as the principal place of residence and the property value (including land) cannot exceed $750,000.

For renovations, the project must be between $150,000 and $750,000 with the existing property worth not more than $1.5 million.

ASX stocks in the spotlight

Before the details were released, I thought the grant would provide a big support to sagging house prices. Now I am not so sure even though new home developers like Stockland Corporation Ltd (ASX: SGP) and Mirvac Group (ASX: MGR) are likely to benefit.

Hardware retailers like those owned by Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) will also see a sales boost as these are where tradies go to get supplies.

By extension, home fitting suppliers are another group that will benefit from the new stimulus. These include GWA Group Ltd (ASX: GWA) and Reece Ltd (ASX: REH).

Further, construction materials companies like CSR Limited (ASX: CSR) and James Hardie Industries plc (ASX: JHX) should also be excited if the stimulus leads to the construction of 30,000 new homes by Christmas, as intended.

It’s a wasted opportunity that the scheme didn’t target social housing. I think that is a better way to support the construction industry and wider community without distorting the housing market.

More reading

• Is the CBA share price cheap today?
• Should the Xero share price have a P/E ratio of 4,000?
• 5 things to watch on the ASX 200 on Thursday
• These ASX 200 shares could be perfect for a retirement portfolio
• The latest ASX 200 stocks to be upgraded to “buy” amid the recession

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc and Reece Australia Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of 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 Australian share market was on form again on Wednesday and raced notably higher.

Some shares climbed more than most, with a few managing to even hit 52-week highs or better.

Three that have achieved this feat are listed below. Here’s why they are scaling new heights:

ASX Ltd (ASX: ASX)

The ASX Ltd share price continued its positive run and hit a record high of $89.71 on Wednesday. Investors have been buying the stock exchange operator’s shares this year due to its defensive qualities and strong share market activity. This morning the company reported a 49% increase in capital raised on the ASX during the month of May compared to the prior corresponding period. It also revealed that the total number of trades on the ASX is up 29% year to date to 423.3 million.

Integrated Research Limited (ASX: IRI)

The Integrated Research share price climbed to a two-year high of $3.66 yesterday. Investors appear confident that demand for the services of this global provider of performance management software for critical IT infrastructure, payments, and unified communications will remain strong during the pandemic. The market has not heard from the company since its half year results in February. This could be a case of no news is good news.

Zip Co Ltd (ASX: Z1P)

The Zip Co share price continued its remarkable run and hit a record high of $6.79 on Wednesday. Investors have been fighting to get hold of the payments company’s shares since it announced an agreement to acquire New York-based buy now pay later provider QuadPay. This deal will see the company go head to head with Afterpay Ltd (ASX: APT) in the United States market. QuadPay is a leading, high growth, instalment provider with 1.5 million customers and 3,500 merchants on its platform. From these it is currently generating annualised total transaction value of over $900 million and annualised revenue of $70 million. This is just the smallest fraction of a U.S. retail market estimated to be worth a staggering $5 trillion.

More reading

• ASX 200 jumps 1.8%, Australian headed for recession
• Sezzle Inc shares and 2 other small cap ASX techs surge higher today
• Why Afterpay, Infigen, Qantas, & Zip Co shares are charging higher
• The Zip Co share price just zoomed to a record high: Is it too late to invest?
• ASX 200 rises 0.3%, Zip rockets 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 Integrated Research Limited and ZIPCOLTD FPO. 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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The Westpac Banking Corp (ASX: WBC) share price will be on watch on Thursday after announcing the results of its investigation into the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance issues. 

This follows the launching of civil proceedings against Westpac by AUSTRAC on 20 November 2019.

Westpac Chairman John McFarlane explained: “In line with the Board’s commitment at the 2019 AGM, we are now making public the results of reviews into the Bank’s AML/CTF compliance failings.”

“It’s been my experience since joining the Bank that Westpac deeply regrets this matter. Indeed, recognising the seriousness of the issues raised by AUSTRAC, the former CEO stepped down and the former Chairman brought forward his retirement. We are all committed to fixing these issues so they don’t happen again.”

What did Westpac announce?

Westpac has blamed its International Funds Transfer Instructions (IFTIs) non-reporting failures on a mix of technology and human error dating back to 2009.

Whereas the failure to properly adhere to AUSTRAC guidance for child exploitation risk occurred due to deficient financial crime processes. This was then compounded by poor individual judgements.

All in all, three primary causes of the AML/CTF compliance failures have been identified by Westpac. They are as follows:

• Some areas of AML/CTF risk were not sufficiently understood within Westpac.
• There were unclear end-to-end accountabilities for managing AML/CTF compliance.
• There was a lack of sufficient AML/CTF expertise and resourcing.

Board governance.

Westpac also released the Advisory Panel Report into Board governance of AML/CTF obligations and the promontory assurance letter on management’s accountability review.

The bank advised that the Advisory Panel has formed a range of views on financial crime related governance.

The report notes that the way the Westpac Board organised its general governance responsibilities was mainstream and fit for purpose.

However, with the benefit of hindsight, it feels that directors could have recognised earlier the systemic nature of some of the financial crime issues Westpac was facing. The Panel also noted that the reporting of financial crime matters to the Board was at times unintentionally incomplete and inaccurate.

Westpac’s new CEO, Peter King, advised that the bank has looked back over ten years and where fault was identified, appropriate action has been taken.

He said: “Consequences that have been applied to individuals include significant remuneration impacts and disciplinary actions. A number of relevant staff had already left the company.”

“A range of remuneration consequences were applied to 38 individuals. Consequences applied to prior year awards, including withheld FY19 short term variable reward, totalled approximately $13.2 million. In addition, cancelled FY20 short term variable reward, including for the CEO and Group Executives, is valued at approximately $6.9 million assuming an outcome of 50% of target opportunity,” he added.

What now?

Mr King has acknowledged the need for cultural change within Westpac.

He commented: “We recognise we need to change. We completely accept that some important aspects of Westpac’s financial crime risk culture were immature and reactive, and we failed to build sufficient capacity and experience in some important areas.”

“We have learned from this and are absolutely committed to making amends for this event,” the CEO concluded.

This brings to an end Westpac’s investigations. It will continue to work with AUSTRAC on the legal process, following the submission of its defence and admissions on 15 May 2020.

More reading

• ASX 200 jumps 1.8%, Australian headed for recession
• ASX 200 up 1%: Big four banks jump, Afterpay hits record high
• Is the Westpac share price a buy?
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 down 0.1%: Big four banks drag ASX lower ahead of RBA meeting

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Xero Limited (ASX: XRO) share price has been a top ASX tech performer for quite some time. Shares in the Aussie software provider are up 11.66% this year while the S&P/ASX 200 Index (ASX: XJO) has slumped 11.11% lower.

But there’s one that thing that really stands out about Xero right now. The Aussie tech group’s shares trade at a price to earnings (P/E) ratio of 4,122.29. That’s a pretty astonishing number, but does it mean Xero is overvalued today?

Is the Xero share price overvalued?

Xero is currently trading at $89.33 per share. A P/E ratio of 4,122 means that for every $4,122 you pay for the share, you can expect the company to generate $1 worth of earnings.

That’s an incredibly high number. Let’s compare that figure that to a strong dividend share like Fortescue Metals Group Limited (ASX: FMG). Fortescue shares are currently valued at $14.66 with a P/E ratio of 6.04.

Of course, we have to compare apples with apples. This means it might be more appropriate to evaluate the Xero share price against that of its WAAAX peers. The Altium Limited (ASX: ALU) share price, for example, currently trades at a P/E ratio of 62.16. Therefore, on the surface it might appear that Xero shares are grossly overvalued.

However, I don’t think it’s that simple. The Xero share price has consistently climbed over the years and investors continue to buy into the company. The group continues to sign big clients and I think small and medium business clients will rely on Xero software throughout the COVID-19 crisis. 

Furthermore, many ASX tech shares don’t actually post positive earnings or ‘profit’. That means the earnings component of the P/E ratio is useless and won’t provide any decisive value. However, if a company posts a 1 cent per share profit, all of a sudden their P/E ratio will be enormous.

Foolish takeaway

I don’t think it’s wise to just use P/E ratios to value the Xero share price, particularly in the current climate. If Xero retains key customers and manages to reduce churn, the ASX tech share could still be a good buy in 2020 and beyond.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 3 high quality ASX shares to buy and hold for decades
• These ASX 200 shares could be perfect for a retirement portfolio
• The latest ASX 200 stocks to be upgraded to “buy” amid the recession
• Why I’m not afraid to invest in shares during this recession

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium and Xero. 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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Is Australia in a recession? According to Federal Treasurer Josh Frydenberg, we are.

Strictly speaking, a recession is defined as two consecutive quarters of gross domestic product (GDP) contraction. This is something Australia has miraculously avoided for 29 years.

But with the Australian Bureau of Statistics reporting a 0.3% contraction in first quarter GDP on Wednesday morning, Mr Frydenberg recognises that a recession is now inevitable.

When quizzed at a press conference about whether the country was now in a recession, Mr Frydenberg said: “Yes, that is on the basis of the advice I have from the Treasury Department about where the June quarter is expected to be.”

Why is GDP certain to contract in the second quarter?

Although there is almost a month before the end of the second quarter, the pandemic-related shutdowns that occurred in March and April are understood to have materially impacted GDP during the quarter.

While the reopening of Australia sooner than many expected will be a boost, it certainly won’t be enough to offset the economy grinding to a halt at the height of the pandemic.

One positive is that Sarah Hunter from BIS Oxford Economics believes the country will escape a Great Depression-like scenario.

In a note, courtesy of the ABC, she said: “With the health outcomes tracking better than expected [which has allowed an earlier-than-anticipated end to lockdown conditions] and the government packages providing a significant support to household income, the decline in GDP in the first half of 2020 will be relatively small when compared to other economies.”

But how small is “small”? Hunter and her team are expecting “the peak-to-trough fall in GDP to be significantly less than 10 per cent.”

When will Australia’s recession end?

The economics team at National Australia Bank Ltd. (ASX: NAB) believe that Australian second quarter GDP will be down 8%. After which, it is expecting a recovery to start from the third quarter, ultimately leading to a 4.3% decline in GDP for the year.

A return to growth is then forecast for 2021, with a full recovery achieved by 2022.

The bank explained: “Looking forward, we expect a much larger fall of around 8% in Q2 where strict containment measures were in place in the first half of the quarter. Beyond that we expect a small rise in GDP in Q3 before a more substantial pickup in growth in Q4. That sees a year average fall in GDP of 4.3% this year, followed by growth of around 4.0% in 2021.”

“Despite the rebound in growth, we do not see the level of GDP fully recovering to its pre-virus levels until mid-2022. Therefore, while we see unemployment improving over 2021 from its peak in coming months, it should remain elevated for some time,” it added.

More reading

• ASX 200 jumps 1.8%, Australian headed for recession
• Is the NAB share price cheap today?
• How to value the big four ASX banks
• How bankable are the big four ASX bank shares in 2020?
• ASX 200 up 0.6%: NAB charges higher, ACCC investigates Qantas acquisition

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.

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Should half of your share portfolio actually be cash right now? That’s what listed investment company (LIC) MFF Capital Investments Ltd (ASX: MFF) has done.

I really respect fund manager Chris Mackay, I think he’s one of the best investors in Australia. He has guided MFF Capital to be one of the best LICs over the past decade with great picks like Visa and Mastercard.

MFF Capital timed the payment of a special dividend well, coming just before the coronavirus market crash.

I think it was very interesting to see that in MFF Capital’s May 2020 update it said that net cash as a percentage of assets was now 46.4%, now almost half of the whole portfolio.

Mr Mackay is keeping in mind how factors like heavily populated cities, globalisation and widespread global travel are crucial for ongoing economic growth and the economic sufficiency of billions of people. But these factors are also partially how the coronavirus spread so easily.

Other geopolitical issues are also concerning to Mr Mackay with problems in Hong Kong and the riots in the US.

Should you sell half your portfolio?

I don’t think you need to be that drastic with your portfolio. I’m certainly not going to sell half my portfolio. But I am bit concerned for the US over the next six months. The riots, ongoing pandemic and upcoming US election could be a challenging time with the US president’s unique style.  

The share market recovery is somewhat justified with how much central bank support there is. And the fact that the pandemic isn’t as bad as it could have gotten despite there being more than 100,000 deaths in the US alone.

Not every share has a great future from the changes that the coronavirus will cause to the economy. But there are still opportunities out there that look good, particularly with how low interest rates are.

Having said that, I’d like to buy more MFF Capital shares. Mr Mackay is a great operator and now it’s well funded for downside protection and can buy plenty of shares if the share market is sold off again.

More reading

• Why I’m not afraid to invest in shares during this recession
• 10 top ASX growth shares to buy in June for strong returns
• How to make $1,000 a month in dividends
• Where I would put $10,000 into ASX 200 shares today
• Save your future self from financial misery

Motley Fool contributor Tristan Harrison owns shares of Magellan Flagship Fund 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.

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The S&P/ASX 200 Index (ASX: XJO) was on form again on Wednesday and stormed notably higher. The benchmark index ended the day up a sizeable 1.8% to 5,941.6 points.

Will the market be able to build on this on Thursday? Here are five things to watch:

ASX 200 expected to race higher.

The ASX 200 looks set to race higher again on Thursday. According to the latest SPI futures, the benchmark index is poised to jump 72 points or 1.2% at the open. This follows a very positive night of trade on Wall Street, which saw the Dow Jones jump 2.05%, the S&P 500 rise 1.35%, and the Nasdaq index climb 0.8%.

6,000 points in sight.

With ASX 200 futures pointing to a strong rise at the open, the index looks set to smash through the symbolic 6,000 points market today. It has been almost three months since the benchmark index traded at this level. Investors will be hoping it is onwards and upwards from here.

Oil prices soften.

Energy shares including Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) will be on watch today after oil prices softened. According to Bloomberg, the WTI crude oil price is down 0.35% to US$36.68 a barrel and the Brent crude oil price has fallen 0.55% to US$39.34 a barrel. Traders appear nervous ahead of an announcement by OPEC.

Gold price sinks lower.

Improving risk sentiment has hit safe haven assets like gold overnight, which could mean miners such as Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) come under pressure today. According to CNBC, the spot gold price is down 1.9% to US$1,700.90 an ounce.

Magellan rated neutral.

The Magellan Financial Group Ltd (ASX: MFG) share price may be fully valued according to analysts at Goldman Sachs. The broker has reiterated its neutral rating and lifted its price target on the fund manager’s shares to $51.69. Goldman believe Magellan is on track to deliver strong performance fees in the second half. However, it feels this is already priced into its shares.

More reading

• ASX 200 jumps 1.8%, Australian headed for recession
• These ASX 200 shares could be perfect for a retirement portfolio
• The latest ASX 200 stocks to be upgraded to “buy” amid the recession
• Why I’m not afraid to invest in shares during this recession
• Top brokers name 3 ASX 200 shares to buy right now

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.

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I think that there are several ASX dividend shares that Warren Buffett would like to have in his portfolio if he were focused on Australian shares.

There are tax advantages for Berkshire Hathaway to stay in the US and tax disadvantages to invest in Australia (such as the higher tax rate). So I don’t think he’s about to jump on these shares. 

But as Australians we get to invest in some great companies in Australia. Some of those ASX dividend shares also offer the benefit of franking credits.

Here are three ideas:

Brickworks Limited (ASX: BKW)

Whilst Brickworks is not exactly the same as Clayton Homes, they are both involved in property building. So I think Brickworks would be one that Warren Buffett would want to invest in for the long-term.

Brickworks has been around for decades. It has been Australia’s biggest brickmaker for a while and now it offers a number of different building products like paving, masonry, precast and roofing. It has recently expanded into the US with a few targeted acquisitions so that the company is now a market leader in the north east.

Why does it count as a good ASX dividend share? It hasn’t decreased its dividend for over 40 years. I think that’s a great record. It should be able to keep that record going through the coronavirus with the reliable distributions paid by its other assets, including an industrial property trust.

It currently offers a grossed-up dividend yield of 5.2%.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is probably the closest thing to Berkshire Hathaway on the ASX. Soul Patts invests in both listed and unlisted businesses. It’s invested in things like TPG Telecom Ltd (ASX: TPM), Brickworks, swimming schools, agriculture and soon it will seemingly be invested in regional data centres.

Warren Buffett has already been at Berkshire Hathaway for half a century, yet Soul Patts’ history goes back much further to the early 1900s. It has great staying power. 

I think Soul Patts could be one of the best ASX dividend shares out there. Its dividend is funded purely by its annual investment income (less operating expenses), which is steadily growing over time. It is currently retaining around a fifth of that regular cashflow profit to invest in more opportunities.

The ability of Soul Patts to invest in almost any asset, anywhere, is very useful flexibility. Soul Patts can choose whatever it thinks will make the biggest returns.

It currently has a grossed-up dividend yield of 4.3%.

APA Group (ASX: APA)

Two of Berkshire Hathaway’s biggest divisions are Berkshire Hathaway Energy and the railroad business. APA Group is somewhat a combination of the two.

It owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.

Australia is looking to gas to deliver a major part of its future energy needs, so this ASX dividend share could be an integral part of the puzzle. The company continues to invest in future projects which will unlock more cashflow for the infrastructure business.

It has increased its distribution every year for a decade and a half. The FY20 annual distribution is expected to grow to 50 cents per unit, amounting to a total distribution of 4.4%.

Foolish takeaway

I think all three of these ASX dividend shares are very interesting ideas for income. I believe Warren Buffett would be very interested in owning each of them. I’d probably go for Brickworks over the other two because I still think it looks like the best value during the current uncertainty, but Soul Patts is my favourite choice for the ultra-long-term.

More reading

• Why I’m not afraid to invest in shares during this recession
• Here’s why long term investing can outperform shorter holding periods
• Where should you invest $1,000 in ASX shares?
• ASX 200 rises 0.3%, Zip rockets higher
• Why Amaysim, Bingo, Brickworks, & BlueScope are pushing higher today

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA 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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If you have $3,000 to invest into the share market, then I think it could be worth splitting these funds evenly across the three ASX shares listed below.

Here’s why I think they would be great options right now:

Aristocrat Leisure Limited (ASX: ALL)

The first option to consider investing some of these funds into is Aristocrat Leisure. It is one of the world’s leading gaming technology companies with a portfolio of world class poker machine and digital games. While the closure of casinos during the pandemic has been a blow, this short term headwind appears to be easing now restrictions are lifting. In the meantime, the lockdowns that have closed casinos have given its digital business a major boost. Overall, I believe Aristocrat Leisure is well-positioned to bounce back very strongly in FY 2021 and then accelerate its growth thereafter.

CSL Limited (ASX: CSL)

This biotherapeutics giant’s shares are more often than not trading within sight of their 52-week high. However, due to its recent share price weakness, the company’s shares are currently trading over 17% lower than their high. I believe this is a rare opportunity to buy this high quality company’s shares at a discount. Which, given its strong long term growth potential, could make this a very smart move for investors.

Pushpay Holdings Group Ltd (ASX: PPH)

A final option to consider investing these funds into is Pushpay. I believe the donor management platform provider is one of the best growth shares on the Australian share market. This is thanks to its increasingly popular software and the sizeable opportunity it has in the medium to large church market. Pushpay recently revealed that it is aiming to win a 50% share of this market over the long term. This represents a US$1 billion revenue opportunity for the company, which is many multiples its current revenue.

More reading

• Why I’m not afraid to invest in shares during this recession
• Top brokers name 3 ASX 200 shares to buy right now
• The smartest ASX 200 shares to buy with $2,500 today
• Afterpay and these top ASX tech shares are on fire in 2020
• Where should you invest $1,000 in ASX shares?

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 owns shares of and has recommended PUSHPAY FPO NZX. 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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As I mentioned here earlier, one of the best ways to grow your wealth is to invest in the share market with a long term view.

This is because by investing over a long period, investors can take advantage of compound interest.

Compound interest is the interest that you earn on interest.

It explains why a $50,000 investment generating a 9.5% return would turn into ~$125,000 in 10 years.

It also explains why this investment would grow by a further $185,000 to ~$310,000 during the next 10 years and then finally by another $450,000 to ~$760,000 over the following 10 years.

With that in mind, here are three ASX shares which I think would be great buy and hold investments:

a2 Milk Company Ltd (ASX: A2M)

I think a2 Milk Company could be a great long term investment option for investors. It has been growing at a very strong rate over the last few years and shows no signs of slowing. Especially given the increasing demand for its infant formula in China and the growing footprint of its fresh milk.

Altium Limited (ASX: ALU)

Another buy and hold option to consider is Altium. It is an award-winning printed circuit board (PCB) design software provider. Over the last few years it has been growing at a rapid rate thanks to the proliferation of electronic devices. This is because almost all electronic devices have PCBs inside them. And with the Internet of Things boom still accelerating, the future looks very bright for Altium.

Kogan.com Ltd (ASX: KGN)

A final share to consider as a buy and hold investment is Kogan. It is a growing ecommerce company which is benefiting greatly from the structural change that is happening in the retail industry. This change has been accelerated by the pandemic and looks set to drive strong earnings growth for Kogan over the next decade and beyond.

More reading

• Why I’m not afraid to invest in shares during this recession
• 3 founder-led ASX shares to buy for strong long-term returns
• The 3 ASX tech stocks that helped this fund manager outperform in May
• Is the a2 Milk share price too high to buy?
• Buy these ASX growth shares for monster 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 Kogan.com ltd. The Motley Fool Australia owns shares of A2 Milk and Altium. 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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