I believe investing in ASX shares is one of the best things we can do to build our wealth. I also think it's a great tool to help build our children's wealth.
Compounding is a very powerful tool that can grow a small amount of money into a much larger amount.
For example, if I put $100 into a bank account that had a 4% interest rate and left it there for 18 years, it'd become $203.
The share market has returned an average of around 10% per annum over the ultra-long-term. If I put $100 into the share market and it grew at 10% per annum for 18 years, it would be worth $556. That's a big difference!
Investing in ASX shares for my child can mean I'm able to contribute a larger amount to them in the future. Or, if I have a goal of say $10,000 in 18 years, it would mean I wouldn't have to put as much of my own money into the fund compared to saving it as cash.
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Where I've invested in ASX shares for my child
At this stage, my wife and I don't know exactly when or how to contribute this money in the future – 18, 20, 25 or another age? Should it be given as a lump sum as cash or specifically to help with a house deposit?
Whatever happens, it's many years away, so it should be a long-term investment.
So far, we have invested in exchange-traded funds (ETFs) and listed investment companies (LICs).
Both ETFs and LICs provide diversification, and I think it's likely that in 15 or 20 years, many of these investment types will still be relevant and solid investments.
LICs can be particularly effective for people looking for stable — and hopefully — growing dividend income because the company structure allows the directors to decide the dividend payments.
The structure of ETFs can be useful for benefiting from capital growth because the fund simply holds a group of assets – if there's underlying growth in those holdings, then investors will see capital growth of the ETF value, too (less the management fees).
I believe ASX ETFs that give exposure to the global share market and own a variety of different businesses could make excellent long-term investments.
ETF ideas
I'm not going to mention the specific ETF we have chosen – partly because it's small (but good). But here are some globally diversified investments I'd be very happy to own for the next decade or two for my child.
BetaShares Global Sustainability Leaders ETF (ASX: ETHI), Vaneck Morningstar Wide Moat ETF (ASX: MOAT), Vanguard MSCI Index International Shares ETF (ASX: VGS), iShares Global 100 ETF (ASX: IVV) and Betashares Global Quality Leaders ETF (ASX: QLTY).
Hopefully, all of these investments could be worth quite a bit more in 15 or 20 years, so they'd all be good candidates for investing in ASX shares for my child.
