ASX shares are a great way to start building your wealth, even if you only have $500.
It can be hard to know where to start. ASX shares have proven to be long-term performers. Generally, shares have returned around 10% per annum over the long-term. The returns look even better when you add in the bonus of franking credits which boost the after-tax return of dividends.
Now you know that shares have broadly performed well. But what are you supposed to invest in? There are thousands of different investment options on the ASX.
To help get you started, I have two ASX share ideas for you:
Share 1: Future Generation Investment Company Ltd (ASX: FGX)
I think diversification is important for beginner investors. For example, if you put your $500 into Commonwealth Bank of Australia (ASX: CBA) shares then all of your money is tied up in one business. I think it could make a lot of sense to go for an initial investment that offers a lot of diversification upfront.
There is a certain group of businesses called ‘listed investment companies’ (LICs). Their job is to invest on behalf of shareholders. Future Generation is one of my favourite LICs for a number of reasons.
I like it because of the philanthropic nature of it. Future Generation donates 1% of its net assets each year to youth charities. This amounts to millions of dollars every year.
Future Generation doesn’t invest directly into ASX shares, instead it invests into the funds of fund managers who invest in ASX shares. These fund managers are meant to be the best in Australia and are chosen by the Future Generation investment committee. Those fund managers work for free so that the annual donation can be made. Each of those funds represents a diversified portfolio, so Future Generation is probably indirectly invested in dozens of different businesses. That’s good diversification.
Returns and dividend
A LIC should be judged for the returns that it generates. Since inception in September 2014 to May 2020, Future Generation’s investment portfolio delivered a gross return of 7.2% per annum. This outperformed the S&P/ASX All Ordinaries Accumulation Index’s return of 5.1% per annum. I think that’s a solid performance.
Indeed, Future Generation outperformed the index over one month, six months, 12 months, three years and five years. It has done well during this COVID-19 period.
LICs can turn the investment performance into a consistent dividend for shareholders. At the current Future Generation share price it offers a grossed-up dividend yield of 7.1%.
The ASX share is currently trading at a share price of $1, which is a 12% discount to the net tangible assets (NTA) at 31 May 2020.
Share 2: Betashares Global Sustainability Leaders ETF (ASX: ETHI)
Another good option for beginner investors is an exchanged-traded fund (ETF). An ETF is a fund you can buy just like a share through an exchange, like the ASX.
There are lots of different types of ETFs. Some are based on countries like Australia or the US. Some ETFs are focused on specific industries like healthcare, gold or technology.
There are ETFs which are based on a particular theme, or have particular standards when it comes to quality or ‘ethics’. It can be hard to definite ethical investing because each person may prefer to exclude different things. For example, some people may want to exclude companies involved with poor environmental credentials whereas other people may want to leave out businesses involved with gambling.
Betashares Global Sustainability Leaders ETF excludes many different things like gambling, tobacco, alcohol, junk food, human rights and supply chain concerns. It has a particular focus on businesses that are climate leaders that try to be carbon efficient.
Its top share holdings as of yesterday were: Apple, Mastercard, Nvidia, Visa, Home Depot, Adobe, Paypal, Netflix and Toyota. Obviously none of these are ASX shares. So you’re getting good international diversification if you go with this ETF as your first investment pick.
Past performance is not a guarantee of future performance. But the returns of this ETF have been impressive and it shows that you don’t need to give up good performance to be invested in this ETF. Since inception in January 2017 it has returned 20.7% per annum after fees.
It’s pretty cheap for an ‘ethical’ investment pick – the annual cost is 0.59% per annum.
I think both of these ASX shares would be good first investments. Indeed, I’d be happy enough to just invest in these two ideas and nothing else. Future Generation is good way to get ASX share exposure, plus it has a good dividend and it’s at good value. I think Betashares Global Sustainability Leaders ETF can provide strong international returns, like it has done, with its focus on sustainable businesses.
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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. 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.