The ASX share market can be a great place for investors in their 40s — or at any age! — because it offers the potential for both capital growth and dividends.
In this time of economic uncertainty, with elevated interest rates and high cost of living, investors may be looking for diversification to provide protection against some market risks.
The two investments below have a track record of outperforming the S&P/ASX 200 Index (ASX: XJO) due to the quality and performance of their underlying investments.
I think they are attractive options that we could hold for the next 10-20 years or possibly longer.
Vanguard MSCI Index International Shares ETF (ASX: VGS)
This exchange-traded fund (ETF) gives investors access to a large portion of the global share market.
It gives Aussies exposure to more than 1,300 companies from numerous countries, including the United States, Japan, the United Kingdom, Canada, France, Switzerland, Germany, the Netherlands, Sweden, Denmark, Spain, Italy, Hong Kong, Singapore, Finland and Belgium.
We can see this fund offers diversification, but it also provides an allocation to the sector with the most growth potential – information technology – with a weighting of more than 25%. That's a bonus for Australian investors, as there aren't many large tech shares on the ASX.
Other sectors with double-digit allocations include financials (15.4%), healthcare (11.4%), industrials (11.1%), and consumer discretionary (10.2%). I like the spread of those weightings.
As mentioned, the VGS ETF is invested in more than 1,000 businesses, but its biggest holdings are some of the leading global US tech companies such as Apple, Nvidia, Microsoft, Alphabet, Amazon.com and Meta Platforms.
So, what about the fees and the returns?
The VGS ETF has an annual management fee of 0.18%, which is quite low and worth paying, in my view, for the worldwide diversification and ability to simply invest broadly in the global share market with one investment.
Its returns have been very satisfactory, with an average annual return of 13.1% since its inception in November 2014. With the fund's return on equity (ROE) of 19.4%, I think the portfolio's business holdings are capable of continuing to deliver solid earnings and capital growth.
In terms of the dividend yield, it's quite low at 1.7% due to the relatively low yields of the underlying businesses.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is an investment conglomerate. It's been operating for 120 years and its role is to invest in other ASX shares, private businesses and unlisted assets.
In terms of diversification, this ASX share is invested in numerous areas, such as telecommunications, resources, building products, property, financial services, agriculture, swimming schools, bonds/credit, and more.
I particularly like two underlying factors of this setup. First, the company is able to look across the investment universe to find the best potential investments, whether they're listed or unlisted, businesses or bonds.
Second, I like that the ASX share's portfolio is aimed at defensive businesses with resilient cash flow.
This means Soul Patts is capable of producing largely consistent earnings and paying a consistent and growing dividend. The business has grown its annual ordinary dividend every year since 2000 and currently offers a grossed-up dividend yield of 4%, including franking credits.
