Teenagers have one of the most valuable things on their side: time. Investing in ASX shares in someone's teens is a great thing to do because of the power of compound interest.
Compounding is when someone's money grows like a snowball, rolling down the hill, gathering snow and getting bigger by itself. The power of interest earning interest is compelling.
Albert Einstein once reportedly said:
Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn't, pays it.
I believe it's important to find investments that are delivering earnings growth (and subsequently capital growth) so that we can benefit from the power of compounding.
With that in mind, below are some ASX share investments I'd want to put into my portfolio straight away if I had some cash to invest as a teenager.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I think Soul Patts is a great starting buy because of the underlying diversification of this investment business.
It's 120 years old and now has a wide range of investments across telecommunications, resources, financial services, agriculture, swimming schools, electrification, credit, property and building products.
Some of its biggest investments include Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG), Tuas Ltd (ASX: TUA), New Hope Corporation Ltd (ASX: NHC) and Macquarie Group Ltd (ASX: MQG).
Each year, the business receives income from its investment portfolio.
After paying for its expenses, the ASX share sends a majority of the cash flow to investors in the form of a growing dividend (which has risen every year since 2000), and with the remaining cash flow, it makes new investments.
Global X Fang+ ETF (ASX: FANG)
I think some of the strongest businesses in the world are the large US tech companies, including Microsoft, Alphabet, Apple, Amazon.com, Nvidia, and Meta Platforms.
These businesses are global leaders at what they do, in my opinion, and it would be extremely difficult for a new competitor to dislodge them from their market position. The stocks I mentioned above are the biggest global names in internet search, cloud computing, social media, smartphones, office and education software, and so on.
We can gain a large allocation to this group of impressive businesses with the FANG exchange-traded fund (ETF). It regularly rebalances the portfolio to a 10% weighting to each of its 10 positions.
Past performance is not a guarantee of future performance, but over the past three years, it has delivered an average return per annum of 15.6%. The ongoing financial success of these businesses could allow it to continue to outperform the S&P/ASX 200 Index (ASX: XJO) over the long term.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
There is a sizeable number of businesses outside of the FANG shares that have strong competitive advantages, too.
Investors usually describe competitive advantages as an 'economic moat', which could take many different forms, such as cost advantages, brand power, patents, regulatory licenses, network effects, and efficient scale.
The MOAT ETF only invests in businesses with a strong economic moat, which is expected to endure for at least two decades, and only buys them when they're priced attractively.
Again, past performance is not a guarantee of future performance, but the MOAT ETF has returned an average of 15.5% per annum over the past five years.
Wesfarmers Ltd (ASX: WES)
I think Wesfarmers is one of the best ASX shares in Australia. It owns several leading retailers, including Bunnings, Kmart, and Officeworks. Those three businesses have proven to be category leaders and continue to invest in growing beyond their current geographic and product footprint.
While it's not as cheap as it was a year ago, I think great businesses can continue to deliver good performance over the long term because of the brand power of those retailers, the value the retailers can provide customers and the strong economics of the operations.
In ten years, I think the business could be larger and be making significantly more profit.
