Starting investing in ASX shares can be a daunting prospect for 18-year-olds entering the investment world. Beginners are faced with many different options to consider.
I think it's worth pointing out that compounding is one of the strongest financial forces. We don't need to find the next Apple to do well.
The ASX share market has typically averaged around 10% per year over the long term. That doesn't mean shares will return 10% year after year. There will be some great years and also some difficult years. One year could see a gain of 25% and the next could show a drop of 15%.
Those numbers I was just talking about are for the share market as a whole but, within that, there are even wider swings for individual companies.
I'd also want to point out that it's probably not necessary for young investors to try to find high dividend yields, and rather focus on businesses that have good long-term growth prospects. That could be a smart tactic right now considering share markets have dropped a fair bit lately. Certainly, it's a good time to find bargains.
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This is an exchange-traded fund (ETF). It'd be a good idea to read up on what an ETF is in the linked explainer. But, essentially, an ETF allows investors to buy a basket of shares as just one investment, rather than having to go and buy 50, 200, or even 1,000 different shares of businesses separately.
Some ETFs are based on an index like the S&P/ASX 200 Index (ASX: XJO) which represents 200 of the biggest ASX shares.
The BetaShares Global Sustainability Leaders ETF is based on investing in 200 of the biggest listed businesses in the world.
But, there's a big difference because this ETF tries to construct a portfolio that aligns with investors' ethical standards. I think this could appeal to younger investors.
It excludes a number of industries from its portfolio including gambling, alcohol, and fossil fuels. It also excludes businesses that do animal testing, companies with supply chain concerns, and so on.
In terms of the actual holdings, these are some of the biggest current positions: Apple, Visa, Home Depot, Mastercard, Toyota, Nvidia, and Adobe. I like the global diversification that the ETF provides.
Of course, past performance is not a reliable indicator of future returns but over the past three years, the BetaShares Global Sustainability Leaders ETF has returned an average of 13.3% per year to 31 August 2022.
Xero Limited (ASX: XRO)
Xero is one of the biggest and best technology businesses on the ASX. It's one of the few tech businesses from the ANZ region to become truly global.
For readers who don't know, Xero is the provider of cloud accounting software to small and medium businesses. It's focused on being a platform that helps businesses with many other features, not just accounting.
Why is it such a good business to consider right now? It's still growing its global subscriber base, even though it already has 3.27 million. It's also growing its average subscriber fee, its customers are extremely 'sticky', meaning Xero retains nearly all of its subscribers each year, and it's investing for more growth.
One of the most attractive things about the business is its extremely high gross profit margin of 87.3% (which keeps growing every year). This means that means a significant portion of new revenue can turn into gross profit, which can then be spent on things like advertising, software development, and so on — more growth, essentially.
One of the main reasons to consider the ASX share is that the Xero share price is down 48% in 2022 to date. That means it's a lot cheaper and better value, in my opinion.
