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Should you invest in LICs, ETFs or ASX dividend shares?

Kenneth Hall
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It can be hard to know where to invest on the ASX in 2020. The bullish run in global markets in the past decade has seen an explosion of options for cashed-up Fools.

However, sometimes the number of options can be overwhelming for the average Aussie. Whether it is a listed investment company (LIC), exchange-traded fund (ETF) or just plain old ASX dividend shares, it can be difficult to pull the trigger and invest.

Here is a quick run-down of these popular investment vehicles to help you decide how to invest your money in 2020.

Listed investment companies (LICs)

The explosion of LICs on the ASX has been quite remarkable in recent years. One of the most popular is Australian Foundation Investment Company Ltd (ASX: AFI).

The Barefoot Investor himself was a big proponent of AFIC for its high dividend yield (3.37%) and diversification across the ASX.

If you’re looking to invest in 2020, buying shares in AFIC could be a good beginner stock. An LIC’s sole purpose is to invest in other companies, with AFIC trying to invest in the ASX and match or outperform the S&P/ASX 200 Index (INDEXASX: XJO).

Exchange-Traded Funds (ETFs)

ETFs are another fairly recent invention in the history of global markets. If you want to invest in 2020, the good news is there are a lot of ETFs to choose from.

ETFs are simply an investment fund that is traded on the exchange, which provides similar investment outcomes but with more liquidity than underlying wholesale funds would have.

For instance, the Vanguard High Growth Index ETF (ASX: VDHG) has a 90% allocation to growth assets and 10% to income assets like cash or bonds. VDHG is traded on the ASX, but actually invests mostly in the underlying Vanguard wholesale funds.

An ETF can be a great way to invest passively in 2020 for a solid portfolio foundation.

ASX dividend shares

Despite the benefits of diversification in ETFs and LICs, ASX dividend shares can still be a great option. For instance, those yield-seeking investors could buy shares in Alumina Limited (ASX: AWC) or Harvey Norman Holdings Limited (ASX: HVN) for a significant income boost.

ASX dividend shares allow you to take targeted positions in companies you think will do well going forward.

For instance, a market-cap-weighted ASX 200 ETF might give you a 0.45% exposure to Qantas Airways Ltd (ASX: QAN) shares. However, if you’re particularly bullish, you might want to buy Qantas shares as a directional bet for extra gains.

The post Should you invest in LICs, ETFs or ASX dividend shares? appeared first on Motley Fool Australia.

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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T 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.

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