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What is the best investment company for ASX beginners?

Tristan Harrison
young investor

It can be very hard to know what investment to start with first for ASX beginners.

Do you start with a typical blue chip that everyone knows like Commonwealth Bank of Australia (ASX: CBA)? Do you go for a growth company that is growing well internationally like A2 Milk Company Ltd (ASX: A2M)?

I believe a good starting point could be listed investment companies (LICs).

What is a listed investment company?

LICs have the same structure as any other company. They have Boards of Directors, a Chairperson, a CEO, they have AGMs and so on.

The main difference is that instead of being an operating business like a supermarket or bank, LICs invest in other shares on your behalf. They try to make the best investment decisions they can based on their investment principles and what their shareholders are looking for. 

What are some LIC examples?

There is a group of old LICs that have been operating for decades, paying dividends and investing in blue chips. The biggest LIC in the entire LIC industry is Australian Foundation Investment Co.Ltd. (ASX: AFI), but my preferred old-school LIC is Argo Investments Limited (ASX: ARG).

I prefer Argo to AFIC because it is steadily growing its dividend, whereas AFIC’s dividend is flat.

Another example is Future Generation Investment Company Ltd (ASX: FGX). In terms of investing in ASX shares, this is my preferred pick. It has a very diverse portfolio because it’s invested in almost 20 ASX-focused fund manager portfolios. Each portfolio would probably have at least around 20 holdings. One of the main things to know is that these fund managers work for free, so that Future Generation can donate 1% of net assets.

Future Generation was only created last decade, but it’s already got a good dividend growth streak and has a grossed-up dividend yield of close to 6%.

However, ASX shares aren’t the only ones you should be looking at. International shares have been strong performers and could continue to be. The ASX only represents 2% of the global share market.

One of the best global share LICs is MFF Capital Investments Ltd (ASX: MFF), which has been the best-performing LIC over the past decade thanks to its great share choices and its recent lower fees compared to other global LICs.

Global market leaders like Visa and MasterCard make up a large part of the portfolio and continue to have very good prospects.

Foolish takeaway

LICs are a great place to start a portfolio, or you could use exchange-traded funds (ETFs) and then you can build on it with some added growth shares.

The post What is the best investment company for ASX beginners? appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO and Magellan Flagship Fund Ltd. 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020