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Why I would buy and hold Afterpay and Xero shares

I firmly believe that if you want to grow your wealth, you need to think long term.

This is because the longer you spend in the market, the longer you have to take advantage of compounding.

Compounding is the interest you earn on interest and explains why $10,000 generating a return of 10% per annum will turn into $26,000 in 10 years.

But which shares would be great buy and hold options? Here are two that I would buy:

Afterpay Ltd (ASX: APT)

I think this payments company could be a great buy and hold option for investors. Once again, in FY 2020 Afterpay has smashed the market’s expectations with incredible sales and customer growth. This has been driven by the increasing popularity of its buy now pay later platform with both consumers and retailers.

Adoption of its platform has been particularly strong with younger demographics, which are turning away from credit cards in their droves and looking for better ways to budget. Particularly during the pandemic as more spending shifts online. I expect this trend to continue for the foreseeable future and drive strong customer growth. This should also be boosted by further geographic expansion in the coming years.

Xero Limited (ASX: XRO)

Another top option for investors to consider as a buy and hold investment is Xero. It is one of the world’s leading cloud-based business and accounting software providers and, like Afterpay, has delivered impressive growth in recent years.

In May Xero reported its FY 2020 results and revealed further strong growth in sales and operating earnings. This was driven by stellar customer growth, prices increases, and its sky high retention rate. I believe the latter demonstrates both the quality and stickiness of its platform. Another positive is its modest market share in North America. At the end of the financial year, Xero had just 241,000 subscribers in the key market. This compares to 914,000 subscribers in a materially smaller ANZ market. I feel this gives it a very long runway for growth.

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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 Xero. 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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