Exchange-traded funds (ETFs) may be one of the easiest ways for investors to build long-term wealth. Indeed, ASX ETFs could be very effective options.
An ETF is a fund, a basket of shares, that can be bought on the ASX.
It hasn't been long since I was in my 20s, but people in their early 20s have plenty of time to enable compounding to do a lot of the work to build a healthy financial nest egg.
There are many different ETFs to choose from. I'd want to choose ones that seem to have long-term growth potential. That's why I'd want to look at the two below.
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iShares S&P 500 ETF (ASX: IVV)
This is one of the most popular ETFs on the ASX, with a fund size of around $5 billion according to Blackrock.
The ETF is invested in 500 of the biggest businesses listed in the US which is where many of the world's largest businesses are based. Of course, past performance is not a reliable indicator of future performance, but the 14.2% average return per annum over the prior five years has shown how well the underlying businesses have grown.
At the moment, the fund's biggest holdings are Apple, Microsoft, Amazon.com, Alphabet, Tesla, and Berkshire Hathaway. Of course, there are almost 500 others.
One of the most attractive things about this ASX ETF is that its management fee of 0.04% is exceptionally low. Plenty of active fund managers charge at least 1.00%.
I think the holdings offer considerable diversification. While they're all listed in the US, the underlying revenue comes from across the world, and the positions are from a variety of sectors like tech, retail, financials, healthcare, and so on.
BetaShares Global Sustainability Leaders ETF (ASX: ETHI)
This ETF is slightly different in a number of ways.
It has 200 businesses in its portfolio, but they are listed in countries across the world. While the US accounts for just over 70% of the portfolio, Japan, Switzerland, the Netherlands, Germany, and the UK each account for over 2%.
The biggest difference between the two portfolios is how they are constructed. The iShares S&P 500 ETF just copies the underlying index – I think it's a great index.
However, this ASX ETF has an ethical slant. It combines "positive climate leadership screens" with a "broad set" of environmental, social, and governance (ESG) considerations.
It excludes a number of areas from its investing. These include fossil fuel producers, companies significantly engaged with gambling or alcohol, companies with human rights or supply chain issues, companies that lack gender diversity on their boards, and so on.
It starts with the global large-cap universe. What's left after those exclusions are the 200 largest 'ethical' businesses.
On 22 November 2022, its largest positions were: Home Depot, Visa, Apple, Mastercard, Toyota, and Nvidia.
For investors who only want to own businesses that they feel good about, then this ASX ETF could be a good option.
