November is probably one of the harder months to find some spare cash lying around. After all, Christmas is now just around the corner, and we all know how expensive the silly season can be. But if you do have an extra $50 lying around right now, I think the best use for it would be to buy some ASX shares.
Here are three reasons why.
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Why you should use $500 to buy ASX shares today
Inflation: $500 today will be worth $400 tomorrow
Chances are you've heard the phrase 'cash is king'. But cash most certainly is not king if you want to build wealth. Just this week, the Reserve Bank of Australia hiked interest rates once again. This was done because the RBA governor declared that "inflation in Australia… is still too high and is proving more persistent than expected a few months ago".
High inflation means that Australian dollars are rapidly losing their purchasing power. At the end of last month, the Australian Bureau of Statistics (ABS) found that inflation ran at 5.2% over the 12 months to 30 September 2023. That means that $500 is worth 5.4% less today than what it was just 12 months prior. Put another way, your $500 could have bought $527 worth of goods this time last year.
As such, the sooner you can put your cash into assets that can beat inflation over time (i.e. by buying ASX shares), the less money you will lose to this invisible inflation tax.
ASX shares have historically been a top investment
When it comes to asset classes that can beat inflation and deliver real rates of return, and thus build wealth, you can't do much better than ASX shares. Back in August, our chief investment officer, Scott Phillips, covered the annual Vanguard chart.
This chart, which is released every year, covers the performances of the most investable asset classes in Australia. This year, it found that ASX shares were amongst the best-performing assets over the past 30 years, beating out listed property, cash, international shares and Australian bonds. The only asset class that outperformed ASX shares were US shares.
Yet another reason to find an ASX home for your spare $500 this November.
ASX shares pay you passive income
Most of us would love a second source of income, preferably passive income, to have alongside our day jobs. ASX shares are a great place to start. The vast majority of ASX shares on the stock market pay out regular passive income to their investors in the form of dividends.
Even if you invest in a simple index fund, which covers most of the largest shares on the market, you can expect a starting dividend yield of around 4% today. The dividends from ASX shares tend to rise over time as well.
So if you invest $500 today by buying ASX shares, you can expect an immediate stream of dividend income that should rise over time, depending on the stocks or index funds you choose, of course.
