Economic downturns are tough. But if you understand your cash flows and have prepared your finances for a recession, you may be in a position to be able to spend some of your cash on starting or continuing investing in ASX shares.
Thinking long term
The stock market, generally speaking, will rise and fall relative to economic growth. Understanding your cash flow will help you to pay all of your bills and avoid any costly late fees or interest. But on top of that, it will give you the comfort to continually invest in ASX shares.
Your chances of picking the bottom of a bear market or recession are highly unlikely. It makes a lot more sense to average into the market and then take the opportunity to buy some additional shares when the market presents especially attractive prices.
Over the long term, shares are one of the best wealth-creating asset classes there are. So, here’s a great ASX share to consider for long-term growth:
Xero Limited (ASX: XRO)
Xero is the company that I nominated as my top stock for April. I personally use and highly rate the product. Allowing and promoting the development and use of third party add-ons makes for a powerful and adaptive product.
Although Xero operates in a competitive market, which includes $69 billion behemoth Intuit, I think there is room for more than one winner. Further, at a market capitalisation of approximately $11 billion, this highlights the potential opportunity should Xero’s management execute and grow market share.
A reason there can be more than one winner is the growing trend of digitising accounting and tax compliance globally. An example of this is in the UK, a market where Xero is currently expanding and sees long-term growth potential.
Despite having some debt on the balance sheet, the company has a somewhat resilient subscription-based business model and a quality product providing an essential service for businesses. As a result, I believe Xero is well placed to weather a storm and shine on the other side. So far to date, the Xero share price has held up particularly well for an ASX growth share amid the current volatility.
Xero’s half-year result was solid with revenue growth of 32% and an increase in earnings before interest, tax, depreciation and amortisation (EBITDA) of 91%. It also grew subscribers by 30% to just over 2 million.
As a New Zealand-based company, Xero’s full-year FY20 results are planned to be released on 14 May 2020.
Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now
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Motley Fool contributor Lloyd Prout owns shares in Xero Limited and expresses his own opinions. The Motley Fool Australia owns shares of 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.