Spoiler alert – how I plan to invest in ASX shares in 2020 has not materially changed from 2019.
With the ALL ORDINARIES (INDEXASX: XAO) recently rising to a high of over 7,000 points, it probably leaves many investors sitting on the sidelines wondering if now is the right time to invest.
However, I don’t dive into macro economics to attempt a judgement call on the future economy. With the best often getting it wrong, I prefer to save each month and invest consistently, keeping an eye out for great companies that I believe will have materially higher earnings in 5–10 years.
Where to start looking?
Often the first place I look to deploy capital is within a current holding. If I always invested in a new company, I would end up with a portfolio of 100 shares (well, eventually). In this case, I probably would’ve been better simply buying an exchange traded fund that follows an index, such as the BetaShares Australia 200 ETF (ASX: A200), which tracks the S&P/ASX 200 (INDEXASX: XJO).
However, keeping my portfolio limited to 15–25 stocks gives me the benefits of diversification with the ability to try and beat the index over time. This also allows you to be rewarded by the runaway of large winners, such as buying Nearmap Ltd (ASX: NEA) shares back when they were selling for less than 40 cents.
Also, the shares I currently own are usually those that I know best – in my opinion, investing in a company that you know is paramount. I’ve been stung too many times when I first started investing by following someone’s advice and investing in a business I knew scarcely more about than the name and industry.
Additionally, I have also found investing in your winners at a higher price usually pays off better than investing in your losers at a lower one. In other words, water your flowers, not your weeds. This can be psychologically more difficult, but fundamentally makes complete sense. After all, a company’s share price (usually) rises due to a growing business, whereas it will drop due to a deteriorating or slowing one.
When to invest?
I don’t believe there is ever a bad time to invest on the ASX, as long as you invest consistently and sufficiently broadly. Doing this over the long term means you should be capable of enjoying the superior returns the ASX has provided investors.
However, while I do attempt to invest each month, I follow companies in my portfolio and other shares on a watch list. Doing so sometimes allows me to see a buying opportunity due to a company announcement and subsequent move in share price, or a sell off without any negative news.
Also, keeping some cash on the side (usually around 10–15% of portfolio size, for me) can allow you to take advantage of market sell offs or the next bear market when it rolls around.
My investing approach in 2020 won’t be much different to that of previous years. Unless a major event happens, at which point I may deploy part of my cash balance, I will be investing consistently each month into great ASX shares.
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Motley Fool contributor Michael Tonon owns shares of Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. 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.