If you're thinking about where to invest your first $500, I've got two lower-risk potential ASX share ideas for you to think about.
I do think exchange-traded funds (ETFs) are good ideas to consider, but I also think there's value in having a consistent (and/or growing) level of income each year rather than whatever the ETF's underlying holdings generate each year. Income security can provide more stability for you.
Listed investment companies (LIC) have the potential to decide the dividends they pay to investors, assuming there is the profit reserve to do so.
That's why I think these two could be great starting ideas:
Australian Foundation Investment Co.Ltd. (ASX: AFI)
AFIC is one of the largest listed LICs on the ASX, it's been going for almost a century. It invests for the long-term in many of the ASX's largest blue chips like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and CSL Limited (ASX: CSL).
The LIC has maintained or grown its dividend in each year of the past 20 years, providing rock-solid income for investors, however it has been paying out most of its earnings each year so it's not providing much capital growth at the moment because the large ASX blue chips aren't growing much either due to the sluggish Australian economy.
All managed investment portfolios, whether LICs or ETFs, charge a management fee. AFIC's is one of the lowest in Australia at only 0.13%.
It currently has a grossed-up dividend yield of 5.4%.
Future Generation Investment Company Ltd (ASX: FGX)
Future Generation is a LIC setup as a charitable for-profit company to donate 1% of its net assets to youth charities each year.
Its investment picks are ASX-focused Australian funds where the manager provides services for Future Generation for free. Many of the other service providers to Future Generation also don't charge money.
One of the main aims of Future Generation is to pay a rising level of dividends to shareholders and also achieve long-term capital growth. It has delivered on these goals since its inception and I think it's trading at an attractive valuation because it's at a discount to its underlying net tangible assets (NTA) per share.
It has a grossed-up dividend yield of 6.1%.
Foolish takeaway
I think both businesses would be good options for a starting investment, but at the current prices I would definitely prefer investing in Future Generation for the higher dividend and lower valuation.
