The share market can be a daunting place for someone just starting out. There are literally thousands of options to choose from, how are you supposed to know what to invest in?
Warren Buffett famously said that his advice to his wife when he passes would be to invest most of the money into an S&P500 index fund.
It's good advice because that index is full of global businesses that are growing. It has a diverse range of shares covering a wide range of industries.
A similar piece of advice about the Australian market would be to put most of a portfolio into Australian Foundation Investment Company Ltd (ASX: AFI) (AFIC) shares.
There's a lot to like about AFIC:
- It has a long and proud history having operated since 1928
- It offers decent diversification with many blue-chip holdings like Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES)
- It has delivered long-term capital growth for investors with the share price growing from $2.36 in 2000 to today's $6.02
- It has grown or maintained its dividend for many years, including through the GFC
- It has a pleasing grossed-up dividend of 5.71%
For 'know-nothing' investors I think AFIC is indeed a good option if you're happy to re-invest the dividend and let it accumulate.
However, I think there are better options for investors wanting to be very passive.
Both Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and WAM Capital Limited (ASX: WAM) could be better as buy-and-hold choices for investors.
They both have diverse portfolios, have a strong record of growing the dividend and generating capital growth for shareholders.
The reason why I think they're better is because they aren't as focused on the top end of the Australian market as AFIC is. I believe the Australian economy is going to go through a bit of a rough patch soon and it will be the big four banks plus our retail giants that suffer the most.
Foolish takeaway
AFIC would be a perfectly fine choice for passive investors, I just think there are better options out there.
