Tag: Motley Fool Australia

Should fixed-interest investments be a part of your ASX share portfolio in 2020?

A fixed-interest investment normally refers to bonds. These are an asset class entirely different from the S&P/ASX 200 Index (ASX: XJO) shares like Woolworths Group Ltd (ASX: WOW) or CSL Limited (ASX: CSL) that ASX investors would be used to. A bond is essentially a loan. When you buy a bond, you are in effect loaning the issuer money at both an agreed interest rate and a set repayment date (hence the term ‘fixed-interest’).

Bonds have been popular as an asset class in the past. That’s because they tend to be both less ‘risky’ and less volatile than investing in ASX shares. Investors who invest in bonds are normally happy to accept a potentially lower rate of return in exchange for this ‘safety’ and stability. The most popular type of bond is one issued by a reputable government (such as Australia or the United States). A government has the ability to print money if necessary, and thus can never really ‘go broke’. Thus, the creditor never has a real risk that the bond issuer will default on its loan.

But the investment thesis for bonds is radically different today than it was even 5 years ago. So, do fixed-interest bond investments have a place in a 2020 ASX share portfolio?

Why is the fixed-interest landscape different today?

Fixed-interest investments are a direct function of interest rates. When a government’s central bank sets a cash rate, the government will usually issue bonds with interest rates at a very similar level. For example, in July 2010, the Australian cash rate was at 4.5%. That meant any government bonds issued at that date would have had an interest rate attached to them roughly in that ballpark. A 4.5% ‘risk-free’ investment might sound pretty good. But consider this – today, instead of 4.5%, the Australian cash rate is at a record low of 0.25%.

The Reserve Bank of Australia (RBA) is actively intervening in the bond market to ensure that 3-year Australian government bonds are yielding no more than 0.25% per annum. Even a 10-year government bond is only offering an interest rate of 0.85% per annum at the time of writing. If locking your money up for a decade with a guaranteed 0.85% per annum doesn’t sound like a great deal to you, I don’t think you’d be alone.

Should you invest in bonds in 2020?

I don’t think it makes much sense to invest in bonds or fixed-interest investments in the current economic climate. The RBA has effectively told us that interest rates will likely remain at record lows for at least a number of years.

But if you do want some of the certainty and stability that bonds arguably still offer, then exchange-traded funds (ETFs) are an easy way to build a fixed-interest position into your portfolio. You could consider the Vanguard Australia Fixed Interest Index ETF (ASX: VAF) or the iShares Treasury ETF (ASX: IGB), which are 2 of the largest bond ETFs on the ASX.

More reading

• 5 steps to start investing in ASX shares
• Where to invest $100,000 into ASX shares
• These were the worst performing ASX 200 shares last week
• ASX 200 drops more than 1%, IAG falls 7.5%
• Escalating US-China tensions are sending these ASX stocks jumping higher today

Sebastian Bowen 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 Woolworths 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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Getting started in the investment world can be overwhelming – there’s a constant stream of information and so much to learn. But getting started investing in ASX shares doesn’t have to be hard. We put together 5 simple steps to get you on the road to mastering your own share portfolio.

1. Figure out your goals

Understand why you’re investing. Is it to provide for retirement, save for a home deposit, or accumulate assets for the next generation? Once you know why you’re investing, you can figure out the best way to achieve your goals. 

2. Understand your risk tolerance

Investing in financial instruments comes with risk. Unforeseen outcomes can occur that damage returns or wipe out your capital entirely. Risk and return are correlated, however, so oftentimes with higher risk comes higher reward. You need to understand how much risk you are willing to take. 

3. Don’t put all your eggs in one basket 

Even when starting out, you should look to diversify your portfolio so that it contains ASX shares across a range of sectors and industries. This is because different companies perform well in different economic conditions. By spreading your capital around, you reduce overall risk. 

4. Think about what types of ASX shares work for you

This will depend on why you’re investing. If it’s to provide an income in retirement, you might look at dividend shares like AGL Energy Limited (ASX: AGL) and Fortescue Metals Group Limited (ASX: FMG). If you are looking to invest for capital appreciation you might consider high growth shares like Afterpay Ltd (ASX: APT) or Megaport Ltd (ASX: MP1). 

5. Do your research

Even if you’re investing in a blue chip company like Coles Group Ltd (ASX: COL) or Woolworths Group Ltd (ASX: WOW), it can pay to look into the company’s recent reports and announcements. This way you will know if there have been any recent events which may have impacted the share price. 

Foolish takeaway

Investing in ASX shares doesn’t have to be complicated. Taking the time to understand your actions and make considered decisions will help you make choices in line with your goals. Whether blue chip or small cap, your investing decisions should help you achieve your financial aims.  

More reading

• Should fixed-interest investments be part of your ASX share portfolio?
• 5 simple steps to financial independence
• These BNPL shares have blown up since their IPOs
• A top ASX dividend share to buy next week
• Fed up of dividend cancellations? Buy these safe ASX dividend shares

Kate O’Brien 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 MEGAPORT FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO, COLESGROUP DEF SET, and Woolworths Limited. The Motley Fool Australia has recommended 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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Are emergency funds still important for your personal finances?

Having cash on hand is the best way to ensure your finances are stable in my opinion. Some people like to think that a share portfolio or a credit card are adequate replacements for an emergency fund – I don’t think that’s a good idea.

Let’s think about the share portfolio idea. Sometimes emergencies will come along whilst the economy is fine. But your finances are more likely to get into trouble when there’s a recession. For example, you may lose your job. That’s exactly when you’d need cash. But during a recession is when share prices are probably lower. Just look at what happened to the share market during March 2020 because of COVID-19! You don’t want to be selling your shares during a crash.

Credit cards aren’t great to rely on either. What if a bank decides not to lend you money just when you need it? I think your emergency fund needs to be your own money. 

How big should your emergency fund be?

I’ve said for a long time that every adult in Australia should have an emergency fund of at least $1,000 (in a ‘high’ interest savings account). Having that money set aside can make a big difference when you need it. Going to a high-interest loan provider would put you into a negative financial spiral.

The last few months may have been the perfect example of why you need an emergency fund. You never know when a big problem is going to rise up. 

I think a good goal for an emergency fund is at least three months of basic living expenses. That could be $6,000, $10,000, $15,000 or more depending on your monthly expenditure. It could take a few months to get another job if you lost your current one, which is why three months is a good target. Some people may decide that the emergency fund should be large enough just to replace the car if it were written off. That could mean $5,000 or perhaps a fair bit more if you’re tradie who needs to transport heavy tools around for their job.

Some households like to have up to six months of living expenses saved up. My household has an emergency fund amounting to around five months of living expenses if we were fairly frugal.

It may be a good idea to put your emergency fund into a different banking institution to your transaction account. So if a big four ASX bank like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) is your main bank then you could think about another bank like Suncorp Group Ltd (ASX: SUN), Macquarie Group Ltd (ASX: MQG) or Bendigo and Adelaide Bank Ltd (ASX: BEN) for your emergency fund.

Is it good to have a rainy day fund these days?

I think a few ASX shares could have done with saving a bigger emergency fund coming into COVID-19. It’s painful for shareholders when businesses raise capital at much lower share prices.

But households can’t go to capital markets for capital raisings. They generally have to rely on themselves.

I’m glad that the Australian government has stepped in with large financial support in the form of jobkeeper and an expanded jobseeker. But that support is going to be reduced later this year.

I think emergency funds are more important than ever in the current COVID-19 world we’re living in.

Earnings are less certain, and we can’t expect the banks and government to be as supportive the longer this goes on.

If you already have an emergency fund I think it could be worth adding to it. If you don’t have any emergency fund then, if your income and budget allows, I think it’s time to start building one.

To be clear, you shouldn’t think of your emergency fund as an investment that’s meant to make returns. It’s there to provide financial stability, it doesn’t matter if the interest rate is poor.

If you have a strong financial foundation then it gives you more flexibility to invest more heavily in ‘risk’ assets like shares.

More reading

• Top fund manager names favourite ASX growth shares
• Why the BlueScope share price is outperforming today
• Why CBA and Macquarie shares could be in the buy zone
• ASX 200 Weekly Wrap: Blue chip shares pull ASX 200 back over 6,000 points
• 3 things that will impact on ASX shares this reporting season

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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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If you’re currently constructing a $100,000 portfolio, you’ll no doubt be on the lookout for investment ideas.

To help you on your way, I have picked out a few shares which I think could be excellent core holdings.

Here’s why I think investing some of these funds in these shares would be a smart move:

Aristocrat Leisure Limited (ASX: ALL)

This gaming technology company could be a top option for investors. Although the closure of casinos and social distancing practices are likely to weigh on demand for its pokie machines in the near term, I expect demand to rebound strongly once the crisis passes. In the meantime, I believe its growing Digital business is well-positioned to benefit due to the growing popularity of mobile gaming. Eventually, both side will be pulling together and its growth should accelerate.

CSL Limited (ASX: CSL)

I think building a portfolio around this biotherapeutics giant would be a great idea. I continue to believe CSL can be a market beater for some time to come. Especially given the strong demand for immunoglobulins, its pipeline of potentially lucrative therapies, and recent acquisitions. I expect this to support solid earnings growth over the next decade and drive the CSL share price higher.

Kogan.com Ltd (ASX: KGN)

Another option to make as core holding could be Kogan. I think the growing ecommerce company is well-positioned to deliver strong long term earnings growth. This is thanks to the increasing popularity of its website and the seismic shift to online shopping. At present approximately 10% of all retail spending is online. I expect this percentage to grow materially over the next decade and for Kogan to benefit greatly. It is also looking to accelerate its growth through acquisitions following a capital raising.

SEEK Limited (ASX: SEK)

Another option to consider as a core holding is this job listings giant. While the pandemic is pressure on near term job listings, I expect things to return to relative normal once the crisis passes. In the meantime, I’m optimistic that price increases and its growing international operations will support its growth. Looking further ahead, management is aiming to grow its revenues to $5 billion later this decade. This compares to the revenue of approximately $1,575 million it expects in FY 2020.

More reading

• Should fixed-interest investments be part of your ASX share portfolio?
• Why I would buy Ramsay and this ASX blue chip share
• How CSL could save Australia from COVID-19
• 2 ASX shares leveraged to the eCommerce shift
• Value stocks to rise on strong A$ and broker picks the cheapest ASX stocks to buy today

James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd and 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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An uncertain economic future may lead some investors to doubt whether a stock market recovery can take place after the recent crash. Certainly, there has been a rebound in the share prices of many companies after their March lows. However, risks such as an ongoing threat from coronavirus could mean that some investors doubt the long-term growth prospects for the stock market.

Despite an uncertain economic future, low valuations on offer across many industries mean that shares could deliver higher returns than other mainstream assets. As such, a portfolio of stocks could boost your financial prospects and increase your chances of retiring early.

The prospects for a stock market recovery

The chances of a stock market recovery often appear to be remote during periods of economic difficulty. It was the same in previous declines, such as the tech boom and the global financial crisis. Even as stock prices rebounded and gradually increased following those declines, risks were still present that could curtail their progress. This led many investors to wait for more subdued economic conditions before buying shares, thereby missing out on the most attractive buying opportunities.

It’s a similar story right now. Risks such as further incidences of coronavirus and political uncertainty in Europe and the US towards the end of 2020 may cause volatility to rise. However, over the long run, investing in shares has proved to be a sound means of generating relatively high returns. The capacity of indexes such as the FTSE 100 and S&P 500 to recover from their difficulties is high, and means that a stock market recovery from the 2020 crash is a likely outcome.

The threat of a second market crash

The threat of a second market crash, and investor uncertainty regarding a market recovery, means that many stocks continue to trade on low valuations. When coupled with the ongoing risks facing the world economy, this could make today an opportune moment to build a portfolio of shares due to the existence of wide margins of safety.

Undervalued shares appear to offer greater return potential than other assets such as cash and bonds over the long run. Similarly, high valuations in the property market mean that the scope for impressive total returns compared to equities may be relatively low.

Therefore, investors who have a long time horizon may wish to commit a large proportion of their capital to stocks at the present time. Even if share prices come under pressure in the short run from the aforementioned risks, over the long term major indexes have generally posted total returns that are in the high-single digits. Through buying undervalued shares today, you may even be able to generate market-beating returns that make a positive impact on your retirement date.

More reading

• Should fixed-interest investments be part of your ASX share portfolio?
• 5 steps to start investing in ASX shares
• Emergency funds: Are they still important?
• Where to invest $100,000 into ASX shares
• How to become a millionaire with ASX shares starting with $0

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 Why the 2020 stock market recovery could be your chance to get rich and retire early appeared first on Motley Fool Australia.

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I believe it’s possible to become a millionaire with ASX shares even if your portfolio is starting at $0.

The average Aussie has the ability to become millionaire. Obviously the more you earn the better chance you have of becoming a millionaire. But you have to actively save and invest your money. 

According to the Australian Bureau of Statistics (ABS), the average employee in Australian earned $1,256.20 a week, or around $65,300 a year. That includes, at one end, the part-time teenager workers up to the high-earning investment bankers and doctors at the other end.

Looking at average earnings is an important starting point for becoming a millionaire in my opinion. In Australia we have the great system of superannuation. All employees are automatically building their wealth thanks to the mandatory super contributions.

Someone earning $65,300 a year would also get 9.5% of that in super, which is $6,203 a year. We can use the Moneysmart compound interest calculator to tell us how much $6,203 turns into over the years. I’m going to use a 10% return, as that’s the rough average return for shares over the long-term.

An easy $1 million?

If you’re 25 and, for the sake of easy calculations, you contribute $6,203 a year for your whole life into your super fund and it compounds at 10% a year, you’d have almost $2.75 million after 40 years. In 30 years you’d have just over $1 million. You’re a millionaire!

So if you’re 35, starting with $0, and you just keep adding $6,203 a year to your super then you can reach $1 million. Of course, that’s a simplistic calculation. It doesn’t include things like tax, franking credits, different earnings over your life and so on.

My point is, nearly everyone can do it if they just keep earning throughout their life and receiving the superannuation contributions.

Investing outside of super

But plenty of people are investing outside of their superannuation fund as well, to supercharge their wealth. That’s what I’m doing.

You can invest with as little as $500 into ASX shares in your own name. So it’s quite easy to slowly and steadily build a portfolio outside of super.

But there are a few things to try to remember. The share market is volatile – expect your shares to go up and down more than 10% over months or even weeks. You should want to try to limit your trading activity. Every transaction costs brokerage. Every share sale where you’ve made a gain means you probably have to pay tax on the gain, lowering your net wealth. It’s best to try to make long-term investment decisions and hold for at least a few years.

I’m not sure what a realistic regular investment amount is for you. Each budget is different. Perhaps you can afford to invest $1,000 a month outside of super.

If you invest $1,000 a month and your shares return 10% a year then (excluding taxation effects) you’d have a portfolio worth $2.26 million after 30 years. Add in your superannuation savings that I’ve already mentioned and you’re a multi-millionaire!

If you invested $1,000 a month and had no super, it’d take just under 23 years for your wealth to grow to $1 million. I think these numbers are quite achievable for the average Australian household if you generally make frugal choices with your money.

Investment ideas to become a millionaire over time

What ASX shares should you invest in to make returns of 10% (or higher) a year? Well, you could go with high quality fund managers to do the investing for you such as Magellan Global Trust (ASX: MGG), WAM Microcap Limited (ASX: WMI) and MFF Capital Investments Ltd (ASX: MFF).

Quality ETFs are also a way to invest for the long-term. I like ones such as BetaShares Global Quality Leaders ETF (ASX: QLTY), Betashares Global Sustainability Leaders ETF (ASX: ETHI), BetaShares NASDAQ 100 ETF (ASX: NDQ) and Vanguard MSCI Index International Shares ETF (ASX: VGS).

Or you can try to invest in the best individual ASX shares you can find. Ones that I really like right now for the long-term are: Pushpay Holdings Ltd (ASX: PPH), Bubs Australia Ltd (ASX: BUB) and City Chic Collective Ltd (ASX: CCX).

More reading

• Where should you invest $1k into ASX shares?
• Why Alcidion, Bubs, IGO, & Next Science shares are pushing higher
• City Chic Collective announces capital raising and acquisition
• 3 ETFs for simple wealth building
• Where I’d invest $9,000 in ASX shares

Tristan Harrison owns shares of Magellan Flagship Fund Ltd, MAGLOBTRST UNITS, and WAM MICRO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS, PUSHPAY FPO NZX, and Vanguard MSCI Index International Shares ETF. 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) gave back its midweek gains on Friday and dropped notably lower. As a result, the index recorded a weekly decline of 0.2% to 6024 points.

While a good number of shares dropped lower last week, some stood out with particularly sharp declines. Here’s why these were the worst performing ASX 200 shares over the period:

The Alumina Limited (ASX: AWC) share price was the worst performer on the index last week with a 7.2% decline. Investors appear to have been taking profit after the alumina and bauxite producer’s shares surged higher a week earlier following its quarterly update. One broker that believes this has created a buying opportunity is Morgan Stanley. Last week it retained its overweight rating and price target of $2.00.

The Cooper Energy Ltd (ASX: COE) share price wasn’t far behind with a 7.1% decline. This appears to have been driven by a broker note out of Macquarie. According to the note, the broker downgraded the gas producer’s shares to a neutral rating and cut the price target on them to 44 cents. Macquarie made the move after Cooper Energy’s guidance for FY 2021 disappointed. The broker doesn’t expect its earnings to be positive until FY 2022 now.

The Western Areas Ltd (ASX: WSA) share price was out of form and dropped 6.6% lower last week. The majority of this decline came on Friday when the nickel producer released its fourth quarter and full year production update. Western Areas produced 5,114 nickel tonnes in concentrate for the quarter, bringing its full year production to 20,926 tonnes. This was just a touch short of its guidance. Operating cashflow came in at $22.9 million, leaving Western Areas with cash at the bank of $144.8 million and no debt.

The TPG Telecom Ltd (ASX: TPG) share price was a poor performer and fell 6.1% last week. The catalyst for this appears to be a broker note out of Credit Suisse. It reinitiated coverage on the newly merged telco with an underperform rating and $7.35 price target. It is expecting a step down in the company’s operating income in FY 2020 because of lower sales in mobile services and roaming revenues.

More reading

• Western Areas share price drops 5% following quarterly report
• ASX 200 drops more than 1%, IAG falls 7.5%
• Escalating US-China tensions are sending these ASX stocks jumping higher today
• Brokers name 3 ASX 200 shares to buy right now
• Will the iron ore price crash by the end of 2020?

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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Financial independence. If you ask 100 different people you’ll probably get 100 different answers as to what it actually is.

To me, it’s the ability to do what I like, when I like. If you love your job, that means continuing to work but with a strong safety net behind you.

The idea sounds great, but to many people financial independence can seem like a pipe dream.

Here are 5 simple steps to help anyone start working towards a stress-free retirement today.

1. Slash your expenses

This is a biggie. If you want to achieve financial freedom, having a good hard look at your current expenses is key.

You don’t have to go to austerity, eating beans and rice and listening to the radio.

However, you should look at what you’re spending and where. Have a think about whether you’re really getting good value from that Netflix subscription or lunches out everyday.

2. Pay down “bad” debts

Bad debts can be a financial independence killer. Credit card and other personal debts can quickly spiral out of control.

If you want to achieve financial freedom, paying down those high-interest debt obligations is an important step.

Look at balance transfers to low or no-interest cards and direct any spare cash towards paying down those bad debts.

3. Make a budget

Once your expenses and bad debts are under control, it’s time to make a budget.

Unless you’re very disciplined, it’s hard to achieve financial independence without some sort of budget. It’s a little bit like trying to drive to an unknown destination without a map.

I like to sit down and make a budget of income, expenses and your personal “profit” each year. This will let you plot out how much of your income you’ll have left for investments.

4. Save a consistent portion of your income

It’s easy to splurge when you first see that income hit your bank account. Achieving financial independence doesn’t require magic, but it does require discipline.

Rather than spending that money, make sure that you save it. If you can consistently save a good portion of your paycheck, you’ll be well on your way to financial freedom.

5. Invest, invest, invest!

Now that you’ve got your personal finances sorted, you can start to invest in some ASX shares!

There are endless opportunities for investing and generating returns for the future. There are hot tech shares like Afterpay Ltd (ASX: APT) or dividend shares like Commonwealth Bank of Australia (ASX: CBA).

If you’re just starting out, a diversified exchange-traded fund like Vanguard Australian Shares Index ETF (ASX: VAS) could be of interest.

Whatever you choose to invest in, make sure you stay disciplined and invest for the long-term.

To turbocharge your financial independence dreams, re-invest any dividends for strong compounding returns.

Foolish takeaway

This is just a quick guide to help investors make their financial independence dreams a reality.

Increasing income can be challenging, particularly given the current economic landscape, but by slashing expenses and making a budget you’ll already be making positive steps in the right direction!

More reading

• These BNPL shares have blown up since their IPOs
• Buffett buys more bank shares: Should you?
• Will the iron ore price crash by the end of 2020?
• ASX 200 sinks 1%: IAG cancels final dividend, tech shares tumble, IGO jumps
• Why Afterpay, Evolution, IAG, & Vicinity Centres shares are dropping lower

Motley Fool contributor Ken Hall owns shares of Vanguard Australian Shares Index. 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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A poor finish to the week led to the S&P/ASX 200 Index (ASX: XJO) posting a small weekly decline. The benchmark index fell 0.2% to end it at 6024 points.

Not all shares tumbled lower with the market last week, though. Here’s why these ASX 200 shares were the best performers on the index over the period:

The Resolute Mining Limited (ASX: RSG) share price was the best performer on the ASX 200 last week with a 17.8% gain. Investors were buying the gold miner’s shares after the release of its second quarter update. During the quarter, Resolute achieved gold production of 107,183 ounces at an all-in sustaining cost (AISC) of US$1,033 an ounce. This means Resolute is on course to achieve its FY 2020 guidance of 430,000 ounces at an AISC of US$980 an ounce. The latter was notably lower than its average realised price of US$1,446 an ounce for the period. Fellow gold miner Silver Lake Resources Limited (ASX: SLR) was also a strong performer last week with an 11.6% gain. This follows the release of its quarterly update.

The AP Eagers Ltd (ASX: APE) share price was on form last week and recorded a strong 16.8% gain. The catalyst for this gain appears to have been a broker note out of UBS. Its analysts have initiated coverage on the auto retailer with a buy rating and $7.90 price target. Although it acknowledges that trading conditions are tough, it believes AP Eagers is well-placed to deliver structural improvements in its profitability over the medium term.

The Orocobre Limited (ASX: ORE) share price wasn’t far behind with a 13.2% gain. This was despite there being no news out of the lithium miner last week. However, investors have been buying Orocobre’s shares since its update in late June. So much so, the Orocobre share price is now up over 26% since this time last month.

The QBE Insurance Group Ltd (ASX: QBE) share price was a solid performer and rose 11% last week. Investors were buying the insurance giant’s shares after it revealed its expectations for the first half of FY 2020. QBE expects to report a first half combined operating ratio of around 104%, which reflects COVID-19 impacts of around $335 million, adverse catastrophe experience of around $60 million, and adverse prior accident year claims development of around $120 million. One broker that was pleased with its progress was Morgan Stanley. It has retained its overweight rating and lifted its price target to $12.50.

More reading

• Up 38% in July! Is the Orocobre share price a buy?
• Top brokers name 3 ASX shares to sell today
• Evolution share price lower despite increased scale of opportunity
• Why Audinate, Nearmap, Resolute, & TechnologyOne shares are tumbling lower
• ASX 200 up 0.4%: Banks lower, Newcrest impresses, Coca-Cola Amatil jumps

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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There is a very real possibility of a second stock market crash in 2020. Risks such as the upcoming US election, Brexit and, of course, coronavirus could cause investor sentiment to weaken.

However, a decline in stock prices could present buying opportunities. Through buying high-quality stocks when they trade at discounted prices, it is possible for long-term investors to generate high returns as the economic outlook improves over the coming years.

High-quality stocks

A second stock market crash is likely to be caused by uncertainties surrounding the economy’s future prospects. This could mean that the operating conditions for many businesses come under pressure.

Therefore, it could be logical for investors to purchase companies with strong balance sheets and access to sufficient liquidity to survive a period of weak sales. They may be better placed to not only still be in existence in a few years’ time, but could also benefit from the demise of their weaker sector peers through increasing their market share.

Identifying the strongest businesses in a sector is subjective. However, measures such as debt levels, the amount of cash a company has on its balance sheet and its ability to access multiple forms of capital should it be required may help you to unearth the best stocks to buy should there be a further market crash.

Undervalued stocks in a market crash

A market crash can provide an opportunity to buy shares when they trade at low prices. However, this does not mean that investors should simply buy the cheapest shares they can find. Many stocks could be cheap because they face difficult outlooks, and they may fail to ultimately recover from their low price levels.

As such, it may be prudent to instead focus your capital on those shares that trade at a discount to their intrinsic value. This could mean that they are not among the cheapest shares around, but that they offer the best value for money based on their quality. It may be more profitable to buy more expensive companies with better prospects, than cheap stocks with difficult outlooks.

A long-term strategy

It is difficult to ascertain when a market crash will end and give way to a sustained bull market. Therefore, while it can offer buying opportunities, there is a chance of paper losses being sustained in the short run while a stock market fall is taking place.

This means that investors should adopt a long-term strategy when buying shares in a downturn. History shows that the stock market has always bounced back to post higher highs after even its most severe declines. The same outcome is very likely after this year’s challenges, which could make it a good time to start building a diverse portfolio of undervalued, high-quality businesses.

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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 If a second stock market crash arrives in 2020, I’d follow this plan to capitalise on it appeared first on Motley Fool Australia.

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