I'm a big fan of buy and hold investing and believe it is the best way to generate wealth. And there's a very good reason for this.
For example, according to data out of Fidelity, as of the end of 2020, the Australian share market had provided an average total return of 8.55% per annum over the last 30 years. That's even after taking into account market meltdowns during the GFC and pandemic.
This means that a single $10,000 investment three decades ago and earning the market return would now be worth just under $120,000.
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What about if you beat the market?
If you invest wisely in companies with strong business models and equally strong growth prospects, you could potentially beat the market.
For this example, let's say you were able to earn a return of 10% per annum over the period. That would turn your single $10,000 investment into $175,000 in 30 years. Not bad for a single investment!
And if you were able to add to your investment over the years, you would be generating even more wealth as it compounds.
Overall, this demonstrates just how rewarding investing with a long term view can be.
Which shares would be good buy and hold investments?
The good news for investors is that there are a number of quality options on the Australian share market that have the potential to generate market-beating returns over the next decade and beyond.
One such share is biotechnology giant CSL Limited (ASX: CSL). It appears well-placed once the pandemic passes due to its in demand plasma-therapies and its lucrative research and development pipeline. Underpinning the latter is an almost US$1 billion annual investment in these activities. A sharp pullback in its share price in recent months arguably makes it even more attractive.
Another top buy and hold option could be Altium Limited (ASX: ALU). This electronic design software provider could have a very bright future due to its industry-leading software and the growing demand for it due to the proliferation of electronic devices globally. The latter is being driven by the artificial intelligence and internet of things booms, which show no signs of slowing.
