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Here’s where I would invest my first $500 in ASX shares

Tristan Harrison
male looking at laptop with confused expression

It can be hard knowing where to put your money if you’re just starting out investing with $500.

If I were choosing my first investment I would go for Future Generation Investment Company Ltd (ASX: FGX).

What is Future Generation Investment Company?

In the share market there are two types of investments. Either individual businesses like Commonwealth Bank of Australia (ASX: CBA) or investments such as exchange-traded funds (ETFs), listed investment companies (LICs), managed funds and so on that are diversified and invested in many other shares/property/assets.

Future Generation is a LIC. Most LICs directly invest in individual businesses on our behalf, but Future Generation is set up differently.

It invests in in the funds of ASX share focused fund managers. Normally those fund managers charge a management fee, but the fund managers work for free. Why do they do that? So that Future Generation can donate 1% of its net assets to youth charities each year instead of that money going to the fund manager. There aren’t any outperformance fees either.

Why is it a good first choice?

It’s a good idea to have a diversified portfolio. If you were to invest $500 into an individual business like Webjet Limited (ASX: WEB) then 100% of your portfolio would be in one company, which isn’t diversified at all even if that’s a good business.

Each fund manager has a portfolio of shares. Future Generation is invested in 20 fund managers which would each be invested in at least 20 shares, so Future Generation is probably indirectly invested in hundreds of shares.

Its investment performance has actually been pretty good since inception in September 2014, it has returned an average 9.8% per year before expenses, taxes and donations. Over the past year that gross return to 30 November 2019 has been 19.4%. These are solid returns with the lower risk and lower volatility that Future Generation provides.

The other reason it could be a good first choice is that it’s cheap. When you buy an individual business or an ETF you are buying $1 of shares with your $1 of cash. LICs can trade cheaper than their underlying assets are worth – a good buying opportunity. Future Generation had net assets of $1.282 per share at November 2019 and the current share price is $1.17, which is a discount of around 9%. 

It’s also the type of investment that you could make one of your core holdings and keep adding to your position when there is a discount.

Does it pay a dividend?

It does. In-fact, providing a steadily-growing dividend is one of Future Generation’s main aims.

It has increased its dividend each year since it start paying one a few years ago and it currently has grossed-up dividend yield of 5.9%, which is much better than what term deposits offer.

The post Here’s where I would invest my first $500 in ASX shares appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. The Motley Fool Australia has recommended Webjet Ltd. 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