I'm planning to buy this top ASX ETF for my child

This investment ticks many of the boxes I'm looking for.

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I want to be able to teach my child about investing in ASX shares to help them financially in the future, and to share the power of compounding. I plan to use the ASX ETF BetaShares Global Sustainability Leaders ETF (ASX: ETHI) to help me do that.

My child won't turn 20 for many years yet, leaving plenty of time for the money to grow.

Compounding is a very powerful tool – it can turn $1,000 into $2,600 after 10 years if it grows by 10% per annum. The figure becomes $6,700 if it grows by 10% annually for 20 years.

Why I like the ETHI ETF

For starters, it offers the type of strong diversification that I'd want from an ASX exchange-traded fund (ETF).

Being able to buy a basket of 300 shares from across the world is appealing. I don't want to make an Australian-focused investment and miss out on the rest of the global share market and global economy.

The fund invests in some of the world's leading businesses such as Nvidia, Visa, Mastercard, Apple, Home Depot, Toyota, ASML and Salesforce.

But I'm not interested in it just because it offers diversification and has strong holdings, though that helps a lot.

It also has an ethical overlay that ensures it's only invested in climate leaders. The ASX ETF excludes various sectors such as tobacco, weapons, alcohol, gambling and so on. It avoids businesses that lack gender diversity on the board and does not invest in businesses where there are supply chain concerns (such as child labour).

I think owning a portfolio of large, environmentally sustainable and ethical companies can perform well.

Whether it's coincidence or influential that these ethical businesses have performed well, the ETHI ETF has delivered an average return per annum of 17.6% since it started in January 2017.

I think it's the type of investment that could help grow in value for my child over the longer term, it can do well for the planet, and we can feel good owning it. The annual management fee is just 0.59%, which I think is reasonable for how much work has gone into constructing the portfolio.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ASML, Apple, Home Depot, Mastercard, Nvidia, Salesforce, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool Australia has recommended ASML, Apple, Mastercard, Nvidia, and Salesforce. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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