I think that ASX shares are a great way for beginner investors to build their wealth.
Don't go thinking that you're going to double your money in a few weeks. That's not how normal investing works. The long-term average returns of shares has been around 10% per annum. If you manage to beat that then I think you're doing well.
One of the main things I'd suggest for beginner investors is that you could look for diversified investment options away from the ASX. Sadly, many of the businesses that feature heavily on the ASX, like the big banks, don't have much long-term growth potential in my opinion.
So that's why I'd suggest buying these ASX shares for a beginner's portfolio:
BetaShares Global Quality Leaders ETF (ASX: QLTY)
Here's an explainer about exchange-traded funds (ETFs). You can buy a fund on the ASX, giving you exposure to lots of businesses in a single investment.
There are lots of different types of ETFs. But I only think it's worth investing in an ETF which has good underlying holdings. An ETF will only perform as well as its investments.
The ETF I've named doesn't invest in ASX shares, it invests in quality global businesses that rank well on four key attributes: return on equity (ROE), debt to capital, cash flow generation ability and earnings stability.
What that means is that the ETF is aiming for specific types of businesses that are highly profitable for how much money the shareholders have had to contribute, those businesses have healthy levels of debt, that they're generating real cash profit (not just from accounting tricks) and that the earnings are generally reliable year to year.
So what shares count as quality? Nvidia, Apple, Accenture, Adobe, Facebook, Intuitive Surgical, Nike and Intuit are some of the biggest names featured.
The ETF has performed strongly in its short life – since inception in November 2018 it has returned an average of 18.8% per annum.
Clearly the stocks in this ASX share's portfolio can produce strong returns. It's invested heavily in the technology sector – around a third of the ETF is made up of IT businesses. Another 26.5% is allocated to healthcare shares. Healthcare shares are very defensive.
The ETF has an annual management fee of just 0.35%, which is cheap compared to active managers. The lower the fees the higher the net returns for investors.
Future Generation Global Invstmnt Co Ltd (ASX: FGG)
Future Generation Global is an ASX share that operates as a listed investment company (LIC). The job of a LIC is to invest in other shares on your behalf.
This LIC is quite different to most other LICs. It actually invests into the funds of Australian fund managers who invest in global shares. The special thing is that there are no management fees or performance fees involved with the LIC. All of the fund managers work for free so that the ASX share can donate 1% of its net assets per annum to youth mental health. Mental health support is particularly important during these difficult times.
Future Generation Global's portfolio has produced impressive returns. The gross portfolio return has outperformed the MSCI AC World Index (AUD) over the past month, six months, twelve months, three years and since inception in September 2015.
Over the past six months, Future Generation Global's return has outperformed by 5% and over the past year it has outperformed by 4.8%.
Some of the largest fund management allocations include 12.4% to Magellan Financial Group Ltd (ASX: MFG), 11% to Cooper Investors and 9.9% to Caledonia.
I think it's a particularly good time to invest today because Future Generation Global's pre-tax net tangible assets (NTA) was $1.505 at 31 July 2020. That means at the current Future Generation Global share price it's trading at a 15% discount to the NTA. You can buy $1 of assets of the ASX share for $0.85. Not bad at all, considering Future Generation Global has shown long-term outperformance.
Foolish takeaway
I think both of these ASX shares would be great options for beginner investors. I think they can outperform the ASX's overall return. At the current prices I would probably go for the Future Generation Global LIC because of the large NTA discount, but the quality ETF is likely to keep doing well too.
