Australians in their 20s have one thing in abundance that older investors lack: Time.
There are some excellent ASX shares that investors would be wise to own for the long term and benefit from compounding.
Another big advantage of owning an ultra-long-term investment is that it can reduce taxes paid because the number of capital gains tax events is lower. If an investor only sold their shares once, they'd only ever activate a capital gains tax event that one time. However, I wouldn't advocate hanging onto a bad investment forever simply to avoid paying tax.
Of course, diversification is also important for long-term investments. We don't want to invest all of our money in one market sector in case something goes wrong in that specific industry.
I believe the two ASX investments below can provide a good mixture of diversification and long-term returns.
VanEck MSCI International Quality ETF (ASX: QUAL)
This is one of my favourite exchange-traded funds (ETFs). It enables investors to invest in a basket of shares that meet quality metrics.
If a company ticks the box on one metric, such as return on equity (ROE), then it has investment appeal. If a stock ranks well on multiple metrics, then it's among the best of the best, in my view.
What are the metrics required to be considered for the QUAL ETF portfolio?
There are three: A high ROE, strong earnings stability, and low financial leverage. In other words, a company makes a lot of profit for how much shareholder money is retained in the business, that profit is usually very resilient, and the balance sheet has low levels of debt.
Perhaps unsurprisingly, some of the highest-quality global businesses include Nvidia, Apple, Meta Platforms, Microsoft, Eli Lilly, Visa, Novo Nordisk, and Alphabet. These hold the largest positions in the QUAL ETF portfolio and are many of the biggest companies in the world.
The portfolio has approximately 300 positions, so there is plenty of diversification.
In the past five years, the QUAL ETF has returned an average of 15.8% per annum. While I don't necessarily expect future returns to be as good as that, I think it can at least continue to deliver returns stronger than the S&P/ASX 200 Index (ASX: XJO) over the long term.
Washington H Soul Pattinson and Co. Ltd (ASX: SOL)
This ASX share is another excellent long-term investment for a number of reasons.
Firstly, Soul Patts operates as an investment house. It can invest in almost anything it wants across numerous asset classes, such as ASX large-cap shares, small caps, credit/bonds, property, agriculture and private equity.
Some of its biggest investments include Brickworks Limited (ASX: BKW), New Hope Corporation Ltd (ASX: NHC), TPG Telecom Ltd (ASX: TPG), Tusa Ltd (ASX: TUA), Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES), agriculture, an electrification business, swimming schools and financial services.
It has plenty of other investments, giving it good diversification, and it continues to expand its portfolio.
According to the ASX share, it delivered total shareholder returns (including dividend reinvestment) of an average of 11.7% over the 20 years to 31 July 2024.
Impressively, the company listed on the stock exchange 120 years ago and has paid a dividend every year since then. It has also increased its annual ordinary dividend every year since 2000.
I'm choosing to invest regularly in this ASX share because I like its investment strategy and long-term track record.
