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Where I’d invest my first $500 into ASX shares

If I were investing my first $500, I’d want to choose a really good option.

It’s very unlikely that your investment is going to generate huge growth returns like Afterpay Touch Group Ltd (ASX: APT), REA Group Limited (ASX: REA) or Xero Limited (ASX: XRO). It can take quite a while to become skilled at identifying good opportunities. You’re more likely to pick a high-flying dud, or at least pay an overly expensive price. 

Investing in a single business would mean that all of your portfolio is 100% allocated to one share – not very good diversification.

There are options where you can buy a lot of underlying shares in a single trade. There are listed investment companies (LIC), which are businesses run by people to choose the best shares to achieve the investment objectives.

There are also exchange-traded funds (ETFs) which look to track an index of shares like the ASX 300 – a list of 300 businesses on the ASX. The way to access the ASX 300 is through Vanguard Australian Share ETF (ASX: VAS).

But an advantage with LICs is that you can, sometimes, buy a basket of shares worth $1 for a share price of just $0.90 (or less), whereas with ETFs you’re always buying $1 of shares for $1. That’s exactly what’s happening with the LIC Future Generation Investment Company Ltd (ASX: FGX).

According to the September 2019 monthly update released yesterday, Future Generation was trading at an 11% discount to its assets with its $1.135 share price.

One of the best reasons to think about this LIC is that it invests in various ASX-focused funds with managers who provide their services to Future Generation for free – no management fees or performance fees at all. Instead, the LIC donates 1% of its assets to youth charities each year. It’s a great initiative in my opinion.

But because it’s invested in around 20 funds, not just 20 shares, it’s extremely diversified. Indeed, it generally displays less volatility than the ASX share market.

Foolish takeaway

Future Generation has a grossed-up dividend yield of 6% and it’s trading at an attractive discount to its assets. I plan to hold Future Generation shares for a very long time and I’m looking to buy more at this price.

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Tristan Harrison owns shares of FUTURE GEN FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and Xero. The Motley Fool Australia has recommended REA Group Limited. 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.