I wish I could go back and change how I invested my first $5,000 into ASX shares today. But I can't, so hopefully this article will help new, beginner investors avoid some of the mistakes that I made.
Investing in ASX shares for the first time can be scary. But it can (and hopefully will) also be the first step in a lifelong journey of building wealth on the stock market.
If I were starting out on my investing journey today with $5,000 to spend, I would avoid individual shares. Instead, I would stick to diversified investments that allow me to spread out my capital and risk amongst many different underlying holdings.
That way, there's no risk of picking one ASX company that might hit the wall and result in a huge loss of capital.
Here are the investments I would happily pick up with my first $5,000.
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Where to spend your first $5,000 on ASX shares today
Starting off, I would recommend an ASX index fund, such as the Vanguard Australian Shares Index ETF (ASX: VAS) or the iShares Core S&P/ASX 200 ETF (ASX: IOZ). These exchange-traded funds (ETFs) represent an investment in either the largest 300 shares on the market (VAS) or the largest 200 (IOZ).
That's everything from Commonwealth Bank of Australia (ASX: CBA) and Telstra Group Ltd (ASX: TLS) to Coles Group Ltd (ASX: COL) and JB HI-Fi Ltd (ASX: JBH).
So essentially, you're getting a big slice of the entire Australian share market, in one easy investment. You will also get an average of all the dividend income that these 200 or 300 companies pay out as well. As such, these ETFs tend to offer decent dividend yields too, as well as some franking credits.
As a beginner investor, I don't think you could spend your first $5,000 on a better choice than one of these ETFs today.
But I would add another ETF to your portfolio too. Australian shares are great, and tend to offer healthy dividend income. But today, ASX shares simply can't match the global scale of the world's best companies. And the world's best companies are almost exclusively listed on the American markets.
Investing in the world's best companies
Think of names like Apple, Microsoft, American Express, Nike, Amazon, Coca-Cola, McDonald's and Mastercard. These world-leading companies are all listed on the US markets.
Thankfully, there are ETFs on the ASX that give us full access to these markets as well. So I would also recommend a fund like the iShares S&P 500 ETF (ASX: IVV) or the Vanguard US Total Market Shares Index ETF (ASX: VTS) to a beginner investor.
Again, one of these funds allows a beginner to expose their portfolios to those top global names listed above, as well as many more, in a simple, easy investment.
If a new investor splits their first $5,000 between an ASX index fund and an American index fund (in whatever proportion they'd like), I think they'll be off to the best possible start they can get to their investing journey.
