The ASX share market has produced good returns for investors over time. We don't have to use shares just for building wealth towards retirement, they can also be used to help our children. ASX exchange-traded funds (ETFs) could be the way to do it.
Whether that's helping fund a house deposit, helping pay for university education, or something else in the future, investing could help build the funds.
If we were hoping to help with $10,000 or $20,000, it would be ideal if compounding could do a lot of the heavy lifting, rather than having to save all of that amount ourselves.
For example, if I invested $500 a year for 15 years, and that money made average annual returns per annum of 10%, it would grow to almost $16,000 in that time. But, I'd only have to contribute $7,500 of that, with investment returns being responsible for the rest.
With a long-term time horizon, I think we can look at ASX ETFs that have a capital growth focus, while paying a little bit of dividend income too.
Image source: Getty Images
Betashares Nasdaq 100 ETF (ASX: NDQ)
This ETF is about investing in 100 of the largest businesses listed on the NASDAQ, which is a US stock exchange where many of the American tech businesses are listed.
Looking at the biggest holdings, there are some names like Apple, Microsoft, Amazon.com, Nvidia, Tesla, Alphabet (Google), Meta Platforms (Facebook and Instagram), Costco, PayPal, and Moderna.
Typically, the companies that are changing the world in some way and unlocking new earnings streams are the ones that are growing at a good pace over time. Many of the world's leading businesses are listed in the US, though they do make earnings from across the world.
I like that with this investment, we can get good diversification with 100 holdings, but they are also among the leaders in what they do nationally or even globally.
Over the past five years, the ASX ETF has returned an average of 15.2% per annum, though past performance is not a reliable indicator of future performance, particularly in the short term.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This ASX ETF is very interesting to me. The holdings are not just based on market capitalisation or industry, but the portfolio is constructed by a high-performing analyst team, for an annual management fee of just 0.49%.
The idea is that this ETF is focused on quality US companies that have wide economic moats, or strong competitive advantages. Those advantages can be in the form of brand power, intellectual property, cost advantages, and so on.
Morningstar analysts only consider businesses that are expected to almost certainly maintain their competitive advantages for the next decade and probably for two decades.
That method creates a watchlist. But, the ETF only invests in a US share if they are viewed as good value compared to what the underlying value of the share is calculated to be.
On February 2023, these were the biggest positions: Meta Platforms, Boeing, MercadoLibre, Teradyne, Salesforce.com, Fortinet, and LAM Research.
Over the past five years, the VanEck Morningstar Wide Moat ETF has returned an average of 14.5%, though past performance is not a guarantee of future results.
Of the two ETFs I've mentioned, this would be my preferred ASX ETF to invest in for my child. I think it could be more consistent.
