Tag: Motley Fool Australia

Despite the widespread carnage across financial markets, there are some shares that could emerge relatively unscathed from the coronavirus pandemic. Defensive shares have the potential to deliver stable earnings and dividends due to the essential nature of their goods and services.

Here are 4 defensive shares on the ASX that could help protect your portfolio from share market volatility.

Amcor PLC (ASX: AMC) 

In my opinion, Amcor is one of the most defensive shares on the ASX. The company is a well-renowned producer of flexible and rigid packaging, allowing Amcor to generate revenue by providing packaging for defensive consumer products such as food, beverages, pharmaceuticals and medical equipment.

Amcor could be a beneficiary of the changed consumer behaviour that has resulted from the COVID-19 pandemic. In addition, the company has a strong balance sheet and is also in the process of realising cost synergies from its $9 billion buyout of US group Bemis.

Brambles Limited (ASX: BXB)

Brambles is another defensive share that services essential goods and services. The company is best known for its iconic and reusable CHEP brand of pallets and crates, of which there are 330 million in circulation. The company is a logistics giant with a resilient supply chain and great exposure to essential consumer goods.

Brambles generates around 80% of its revenue from the consumer staples sector and has recently noted record levels of pallet demand from its grocery supply chains. The company cited that the defensive and resilient nature of its business was reflected in the strong volume growth.

Sonic Healthcare Limited (ASX: SHL)

Sonic is the third-largest pathology provider in the world, generating defensive revenue from radiology and pathology services. Although the company withdrew its earnings guidance for FY20, Sonic has been awarded a contract from the Australian Government to provide testing for COVID-19 in residential aged care facilities.

Despite being initially sold down heavily, the Sonic share price has bounced back around 30% from its low in mid-March. In addition to playing a crucial frontline role, Sonic has a strong financial position with a balance sheet boasting almost $1 billion in cash on hand.

Xero Limited (ASX: XRO)

With accounting software being an essential for all business owners, the services offered by Xero gives the company excellent defensive qualities in my view. The company has a resilient and sustainable revenue stream, reporting over 2 million subscribers in 2019.

Xero also boasts a strong balance sheet with NZ$111 million cash in the bank that could see the company navigate through the coronavirus crisis. In addition, Xero is poised for growth in overseas markets with the company expecting to exceed 5% in average revenue per user growth.

Foolish takeaway

In my opinion, a prudent strategy for long-term investors is to hedge their portfolio with defensive shares in order to provide some protection from further market volatility. I would recommend that investors compile a watchlist of defensive shares that are exposed to essential sectors and could blossom post-pandemic.

More reading

• 3 ASX tech shares to buy and hold until at least 2030
• What to watch on the ASX 200 next week
• Invest your first $10,000 in these cheap ASX shares today
• Top brokers name 3 ASX 200 shares to sell today
• Could this ASX healthcare share surge on COVID-19 testing?

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Amcor Limited. The Motley Fool Australia owns shares of Xero. The Motley Fool Australia has recommended Sonic Healthcare 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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With the cash rate at a record low of 0.25% and unlikely to increase any time soon, the interest rates offered with term deposits and savings accounts look set to stay lower for longer.

In light of this, I believe income investors ought to consider investing in some of the high quality dividend shares on the ASX in order to generate a sufficient income.

Three that I would buy are listed below:

Fortescue Metals Group Limited (ASX: FMG)

If you don’t mind investing in the resources sector, then Fortescue could be a good option. Iron ore prices have been very resilient during the pandemic, putting Fortescue in a position to deliver another bumper profit in FY 2020. And given the strength of its balance sheet, I suspect the majority of its free cash flow will find its way back to shareholders. Estimating what dividend the iron ore producer will pay is difficult, but most analysts agree that it will be somewhere in the region of a 6% to 7% yield in FY 2021. Not only is this a very attractive yield, but its shares could be a good way of diversifying your portfolio across sectors.

Telstra Corporation Ltd (ASX: TLS)

Another dividend share I would buy is Telstra. Thanks to its ongoing operating cost reductions, improving industry conditions, the arrival of 5G, and the near completion of the NBN rollout, I think Telstra is a great option for income investors right now. In addition to this, it recently reaffirmed its guidance. And while it might decide to be prudent because of the pandemic, I believe its guidance leaves it well-placed to maintain its 16 cents per share dividend in FY 2020. This equates to a fully franked 5.3% dividend yield.

Vanguard Australian Shares Index ETF (ASX: VAS)

A final option for income investors to consider buying is the Vanguard Australian Shares Index ETF. Rather than invest in individual shares, this exchange traded fund gives investors the option to invest in the 300 shares that are listed on the S&P/ASX 300 index through a single investment. This includes the shares above, the big four banks, and dividend favourites such as Sydney Airport Holdings Pty Ltd (ASX: SYD) and Transurban Group (ASX: TCL). While its current yield is likely to be impacted by dividend deferrals and cancellations that have occurred recently, I expect things to return to normal again in FY 2021. At which point I estimate that its units will provide an attractive yield of over 4%.

More reading

• 3 ASX shares to buy as a beginner
• Here’s why the laziest ASX investors end up the richest
• The ASX 200 blue chip shares I would buy with $5,000 after the market crash
• Invest your first $10,000 in these cheap ASX shares today
• Is the Telstra share price a buy?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Transurban 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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While the S&P/ASX 200 Index (ASX: XJO) has seen a partial rebound since its lows in late March, I believe there are still some excellent buying opportunities for investors to purchase quality ASX shares at more favourable share prices.

So with this in mind, here are 2 of my top picks right now:

Bapcor Ltd (ASX: BAP)

Leading second-hand car parts distributor Bapcor saw a sharp decline in its share price in the weeks following the market crash that began in late February. While there has been some recovery in its share price since late March, the Bapcor share price is still well below what it was in mid-February. This provides, in my opinion, a good buying opportunity for patient long-term investors.

Bapcor recently provided a trading update, indicating strong company-wide performance during January and February of 2020, with revenue at the end of February up 12.7% year-to-date over the prior corresponding period. While the company performed solidly in March in Australia, New Zealand was more significantly impacted due to harsher lockdown restrictions.

The company’s fundamentals appear to remain strong, and its current expansion into Thailand looks to be very promising. This should provide the company with a useful launching pad for further expansion into Asia in the years to come.

Bapcor’s balance sheet looks to be very solid after its recent capital raising of $180 million to see it through any prolonged downturn caused by the coronavirus pandemic. Also, as lockdown restrictions now look set to begin to be eased in both Australia and New Zealand, business activity is likely to pick up, which I believe could translate to a further uplift in the Bapcor share price.

SEEK Limited (ASX: SEK)

Between mid-February and late March, shares in online employment classifieds business SEEK fell by around 50%. This came as investors reacted negatively to a sharp fall-off in listing volumes across all its markets. In the company’s ANZ and Asia regions, billings were down by as much as 60% during the week ending 29 March.

While there has been some bounce back since then, the SEEK share price is still down by around 26% since its recent high of $23.64 on 14 February.

With lockdown restrictions set to be eased in Australia in the months ahead, and strong encouragement by the government for Australians to return to work, I feel confident that listing volumes will gradually start to ease higher. New Zealand looks likely to follow a similar road to recovery.

I believe that SEEK remains well-positioned to continue to deliver strong revenue and profitability growth over the next decade, due to its entrenched and market-leading position.

More reading

• 3 ASX shares to buy as a beginner
• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week
• What to watch on the ASX 200 next week
• The ASX 200 blue chip shares I would buy with $5,000 after the market crash

Motley Fool contributor Phil Harpur owns shares of Bapcor and SEEK Limited. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended SEEK 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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Once again in 2020 the information technology sector is outperforming the S&P/ASX 200 Index (ASX: XJO).

Since the start of the year, the S&P/ASX 200 information technology index has fallen just 1.8%. This compares to a decline of over 19% by the benchmark ASX 200.

Due to the quality and growth potential of many companies in the tech sector, I expect this outperformance to continue throughout the 2020s.

In light of this, I think having exposure to the tech sector would be a very good thing for a portfolio.

But which tech shares should you buy? Three top tech shares I would buy right now are listed below:

Appen Ltd (ASX: APX)

Appen is the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence. It creates the data that goes into the machine learning models of many of the biggest tech companies in the world. Demand for its services has been growing strongly in recent years due to the increasing importance of artificial intelligence for businesses. This certainly was the case in FY 2019, with Appen smashing expectations with a 42% increase in underlying EBITDA to $101 million. Similarly strong growth is expected again this year and, thanks to the expected increase in spending on machine learning and artificial intelligence over the next decade, I feel it is well-placed to continue its strong form for many years to come.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is a fast-growing donor management system provider. The New Zealand-based company’s system includes donor tools, finance tools, and a custom community app which are being used widely in the faith sector in the United States, Canada, Australia, and New Zealand. Demand for its solutions has been growing strongly, even during the coronavirus pandemic. This led to Pushpay delivering a 1,506% increase in EBITDAF to US$25.1 million. The good news is that more strong growth is expected in FY 2021, with management providing guidance for a 91.2% to 107% year on year EBITDAF increase. But it won’t stop there. Pushpay is targeting a 50% share of the medium and large church market in the future. This represents a US$1 billion opportunity and is many times more than the US$127.5 million revenue it posted in FY 2020.

Xero Limited (ASX: XRO)

Another top tech share to consider buying with a long term view is Xero. It is a leading business and accounting software provider which has been growing its market share at a rapid rate over the last few years. This has been driven by the increasing popularity of its high quality software and its expansion globally. The good news is that with less than 20% of the global (English-speaking) addressable market estimated to be using cloud accounting software, it still has a significant runway for growth.

More reading

• What to watch on the ASX 200 next week
• These are the star ASX shares of the week
• These were the best performing ASX 200 shares last week
• Invest your first $10,000 in these cheap ASX shares today
• 3 star ASX shares to buy for the rest of 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of Appen Ltd 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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With the share market still down materially from its highs, I believe there are ample opportunities for investors with a long term focus.

Three top growth shares which I think could be market beaters over the next five years are listed below. Here’s why I would invest $3,000 into them:

Aristocrat Leisure Limited (ASX: ALL)

I think the recent share price weakness experienced by Aristocrat Leisure’s shares has brought it down to a very attractive level for a long term investment. The gaming technology company’s performance this year will inevitably be impacted by the closure of casinos globally because of the pandemic. But once the crisis passes I don’t think it will be long until demand for its poker machines increases again. In the meantime, the company’s Digital business is likely to be benefiting greatly from these closures and lockdowns. In FY 2019 the segment delivered revenue of $1.23 billion and $370 million segment profit from its 7.5 million daily active users.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another good option for investors to consider buying is Domino’s Pizza. Its shares haven’t fared too badly during the pandemic because of the increasing consumption of its pizzas due to restaurant closures and lockdowns. However, they are still trading 14% lower than their 52-week high. I think this could be a buying opportunity due to its positive long term growth outlook. Over the next five years the company is aiming for solid like for like sales growth and the expansion of its global store network by 7% to 9% per annum. Combined, this should lead to strong earnings growth over the period. 

Zip Co Ltd (ASX: Z1P)

Finally, although the Zip Co share price gained almost 50% last week, it is still down 44% from its 52-week high. I think this could be a buying opportunity for investors that are looking for buy and hold options. There had been concerns that Zip Co’s business model might struggle if trading conditions deteriorated materially, but this hasn’t proven to be the case. Last week it revealed that at the height of the pandemic in April, it delivered an 86% jump in monthly transaction volume to $181.6 million. Another big positive was that its net bad debts came in at just 1.99%. I’m optimistic its strong growth can continue for some time to come thanks to new verticals, its international expansion, and the growing popularity of the payment method.

More reading

• These are the star ASX shares of the week
• Federal Government outlines 3-step plan to reopening Australia
• Why ASX payments shares might be the biggest winners of the 2020s
• Afterpay competitor Zip Co rockets higher after reporting 86% increase in April volumes
• Why Harvey Norman, Propel, REA Group, & Zip Co are charging 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 ZIPCOLTD FPO. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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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One area of the market that I think has a large number of top long-term options for investors to consider buying is the mid cap space.

Three mid cap shares which I believe could generate strong returns for investors over the next decade are listed below. Here’s why I like them:

Bravura Solutions Ltd (ASX: BVS)

The first mid cap share to look at is Bravura Solutions. It is a fintech company providing software and services to the wealth management and funds administration industries in the Asia, Europe, Middle East, and Africa regions. The company has a number of different products in its portfolio which combined appear to have positioned it for strong long term growth. The key product for me is the Sonata wealth management. It is used by many large financial institutions to connect and engage with their clients anytime, anywhere, via computers, tablets or smartphones.

Jumbo Interactive (ASX: JIN)

Jumbo is an online lottery ticket seller and the operator of the Oz Lotteries website. Its shares have pulled back materially in recent months due to concerns over its slowing growth. However, it is worth noting that this has been caused by the company’s investment in its future growth and is only expected to be temporary. As a result, I believe its shares have been oversold and are now trading at an attractive level. Especially when you consider that Jumbo is aiming to generate $1 billion in ticket sales annually through its platform by FY 2022. This will be triple what it achieved in FY 2019.

Megaport Ltd (ASX: MP1)

A final mid cap share to consider is Megaport. It is an elasticity connectivity and network services company. Its service allows users to increase and decrease their available bandwidth in response to their own demand requirements. This is instead of being tied to fixed service levels on long-term and expensive contracts. Due to the popularity of its service, its growing footprint in data centres globally, and the seismic shift to the cloud, it has been growing at a rapid rate in recent years. And given that larger and larger amounts of computer infrastructure continue to move from local servers to cloud providers, Megaport appears well-placed to continue its strong form in the 2020s.

More reading

• Where to invest $2,500 in the ASX for strong long term returns
• These All Ords shares have just hit 52-week highs or better
• Market close: ASX 200 finishes 0.4% lower
• 3 exciting ASX tech shares to buy and hold in the 2020s
• 2 top ASX growth shares to buy this week

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 and recommends Jumbo Interactive Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd and MEGAPORT FPO. The Motley Fool Australia has recommended Bravura Solutions Ltd, Jumbo Interactive Limited, and MEGAPORT 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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It can be hard to know which ASX shares to buy when you’re just beginning. I mean, the S&P/ASX 200 Index (ASX: XJO) alone has roughly 200 shares to buy.

I think keeping things simple is the key when you’re first investing. That means you don’t need to bet on the “next Afterpay” or worry about someone that made millions in bitcoin.

Here are a few of my top ASX shares to purchase as a beginner looking to invest in ASX shares today.

3 ASX shares to buy for beginners

When times are uncertain like this, a few large-cap dividend shares can be just the ticket. Large-cap shares often have strong balance sheets, steadier earnings and less volatility compared to some of the smaller ASX shares.

I think it’s good to start by looking at BHP Group Ltd (ASX: BHP). BHP is among the largest ASX-listed shares on the market with a $149 billion market capitalisation. The group’s shares also have a handy 6.79% dividend yield and are trading at a price-to-earnings (P/E) ratio of 10.88. That means for every $10.88 you pay for BHP shares, you should see roughly $1 in company earnings.

BHP is a solid buy for almost any portfolio. The mining sector could have some tough times ahead but the technical environment looks alright to me. China’s increasing development and major Australian Government infrastructure investments are a couple of the tailwinds I can think of for BHP shares.

Another great share for beginners is Telstra Corporation Ltd (ASX: TLS). Telstra has been a staple of the average investment portfolio for decades and is yielding 3.30% right now. With more demand for mobile infrastructure and a shift towards working from home, I see Telstra’s business booming despite the NBN Co competition.

Finally, an Australian real estate investment trust (A-REIT) could be the way to go. A-REITs invest in a portfolio of property and you can then buy ASX shares in those funds for easy property exposure. That seems easier to me than saving for an investment property with strong dividend income and diversification benefits. 

An A-REIT like Scentre Group (ASX: SCG) could be on the cheap side right now. Scentre shares are down more than 40% in 2020 but things are looking up for the Aussie economy. With an 8.73% dividend yield, Scentre could be a top ASX dividend share for beginners to buy today.

Foolish takeaway

While ASX dividend shares are great for any portfolio, there are inherent risks. Dividends are at the discretion of management and when times are tough, they may restrict these payments. That means you can’t bank on dividend income being steady forever.

When it comes to buying ASX shares as a beginner, slow and steady wins the race. Consistently putting away extra cash into a diverse range of high-quality companies is the way to build long-term wealth.

More reading

• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX 200 shares to buy next week
• What to watch on the ASX 200 next week
• The ASX 200 blue chip shares I would buy with $5,000 after the market crash
• Top broker urging you to buy this ASX 200 retail stock next week

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Scentre 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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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:

Afterpay Ltd (ASX: APT)

According to a note out of UBS, its analysts have retained their sell rating and lowly price target of $13.00 on this payments company’s shares. The broker has held firm with its rating despite news that Tencent Holdings has snapped up a 5% stake in the buy now pay later provider. While it acknowledges that this validates the Afterpay business model, it feels it is unlikely that Tencent will give Afterpay access to WeChat payments in the China market. In light of this, it sees no reason to change its rating at this point. The Afterpay share price ended the week at $39.88.

AGL Energy Limited (ASX: AGL)

A note out of the Macquarie equities desk reveals that its analysts have retained their underperform rating and cut the price target on this energy retailer’s shares to $15.88. According to the note, the broker expects AGL Energy to be hit with a double whammy of weak commodity prices and financial relief for customers. And while it has retained its guidance for FY 2020, the broker expects next year to be much more challenging. The AGL Energy share price last traded at $16.49.

SEEK Limited (ASX: SEK)

Analysts at Morgans have downgraded this job listings company’s shares to a reduce rating with a $15.55 price target. According to the note, the broker was surprised to see SEEK’s share price rally so hard over the last few weeks considering the tough trading conditions it is facing. It isn’t expecting a rebound in job advertisements to happen quickly and expects it to be a slower recovery than the market appears to believe. The SEEK share price ended the week at $17.41.

More reading

• Top brokers name 3 ASX 200 shares to buy next week
• What to watch on the ASX 200 next week
• The ASX 200 blue chip shares I would buy with $5,000 after the market crash
• Top broker urging you to buy this ASX 200 retail stock next week
• Afterpay shares are up 400% in 6 weeks: Is it too late to invest?

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended SEEK 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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There aren’t many ASX shares that I think every investor should own.

Many businesses aren’t “great” businesses. For plenty of shares it’s hard to be quite certain about their long-term growth prospects. There’s a lot of change and disruption happening out there all the time due to competition and the ongoing coronavirus pandemic.

But there is a small group of shares that I could see weathering most problems, including the current issues. These shares have long-term growth prospects, great management and operate in reliable industries.

Here are two of my favourite ASX shares that I think every investor should own:

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

I believe that Soul Patts is one of the best shares on the ASX. It’s an investment conglomerate that has been going for over a century. I think it could go for another hundred years because of its style of operations.

It’s invested in a variety of different shares in different industries like TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV) and Palla Pharma Ltd (ASX: PAL). It also owns plenty of unlisted businesses outright like resources, agriculture and swimming schools.

It has been recently reported that it’s going to start investing in regional data centres alongside a business called Leading Edge Data Centres.

Soul Patts is diversified, it’s long-term focused and it has a growing dividend. There’s a lot to like and it’s one of those ASX share ideas you can own for a very long time.

Altium Limited (ASX: ALU) 

I believe that Altium is one of the best ASX growth shares around. It’s a world leader in providing electronic PCB software to help engineers design the devices, items and vehicles of the future.

It already has an impressive list of clients using its software including Amazon, Microsoft, Google, Disney, John Deere, Tesla, Space X, NASA and so on.

Over the past several years it has been steadily growing its profit margins thanks to its operating leverage and growing scale. That’s the advantage of a software business – once you’ve developed the software there aren’t many more costs, it mostly falls to the profit lines. That’s a sign of a great ASX share.

Altium has an ambitious goal of 100,000 Altium Designer subscribers and US$500 million revenue by 2025. These are large goals, particularly under the current circumstances. But its cloud offering of Altium 365 could be perfect to convince potential clients to switch over in this period of disruption.

The company’s balance sheet is great because it doesn’t have any debt and its cash balance is steadily growing despite paying (attractive) growing dividends each year. This growing cash pile can be used for bolt-on acquisitions or simply to ride out tougher times like this.

Altium’s share price has performed strongly since 23 March 2020. It’s not cheap, but it could be one of those long-term winners.

Foolish takeaway

I think both of these shares could be some of the best ASX shares out there.

At the current prices I’d go for Soul Patts. Altium may have recovered too strongly (in the short term) given the uncertain economic circumstances. However, with interest rates now at very low levels, both of these shares look very attractive compared to holding cash or even bonds.

More reading

• 3 ASX dividend shares raising dividends like clockwork
• 3 of the best ASX 200 shares to buy and hold for 10 years
• Why I’m even more confident about the Soul Patts share price
• How to make a $1 million share portfolio by investing $1,000 a month
• How to build your first ASX share portfolio

Tristan Harrison owns shares of Altium and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover 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 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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Just ‘buying the index’ is often derided as the ‘easy way out’ or investing for those who don’t like to invest. After all, if you compare the ease of just buying a plain-Jane index fund instead of doing the research, finding ASX shares that you think are winners and buying at the right price, it indeed seems like the easy way out.

Normally, the goal of any ‘active’ investor is to outperform the broader market – the return you can get from just buying an index fund like the Vanguard Australian Shares Index ETF (ASX: VAS). If you can get a market return so easily, you might as well aim higher if you’re actually interested in investing, after all.

But according to reporting in the Australian Financial Review (AFR), the lazier you are as an investor, the more likely you are to get a better investment return.

According to the AFR report, the period of immense market volatility we saw over February and March saw a massive increase in retail investors buying and selling ASX shares – double that of the preceding 6 months.

Volatility breeds risky behaviour

The AFR quotes a study from ASIC (the Australian Securities and Investment Commission), which found that, during this period, more than half the days on which retail investors were net sellers, they watched the stock prices of investments rise the following day.

Yet if an index investor just ignored the markets during this time, they would have been up close to 20% from the lows we saw in March – without any brokerage fees, transaction costs or taxes that come from dipping in and out of shares to worry about.

This type of behaviour has been proven to bring wealth destruction time and time again. It’s the reason why Warren Buffett always says things like “if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”.

I’ll add another quote from Buffett’s right-hand man Charlie Munger, who once said: “I succeeded because I have a long attention span.”

Do you really think these 2 investing legends would be darting in and out of shares during a bear market? No! They both have made a habit of making big purchases of shares during times of volatility and then sitting on their buys for years and decades afterwards.

It’s something of a lazy approach, but as we’ve seen – the lazy investors usually end up on top. So even if you just ‘buy the index’, your chances of high returns are far greater than someone who thinks they can time the market!  

More reading

• How to invest $500 in ASX shares today
• 3 high quality ASX dividend shares to buy next week
• Why diversifying your ASX shares is so important
• Why invest in ASX ETFs?
• Does this ASX share have the safest dividend on the market?

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.

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