‘Just buy the index’ is a common refrain you hear from investors these days. Index-tracking exchange-traded funds (ETFs) have become a popular pathway for investing in recent years. So much so that the most popular ETF in Australia – the Vanguard Australian Shares Index ETF (ASX: VAS) – now has over $4.8 billion in funds under management.

The ease, simplicity and passive nature of ETFs have driven this surge, together with the (quite frankly) dismal performance of ETFs’ actively managed counterparts.

So why bother trying to buy shares yourself when you can just ‘buy the market’?

Weighing up index ETFs

ETFs work by buying every share in an index – the good, the bad and the ugly. VAS, for example, holds the largest 300 companies in Australia, with the largest companies (like CSL Limited (ASX: CSL)) having far more weighting than the smallest.

The good news is that you can buy the market just through one single ASX share. ETFs typically have very low fees and expenses as well (VAS only charges a fee of 0.1% per annum for instance).

The bad news is that ETFs are designed to blindly follow an index – meaning the fund will be buying the strong shares along with the weak, the good companies along with the bad – with no discretion in between.

That means you are never going to outperform the ‘market’ because the ETF is the market. You are accepting an average return forevermore.

That might be just fine for those investors who don’t want to put any work into investing and have a very long-term horizon. History shows that even just investing in an ETF like VAS will give you far superior returns to just having your money in cash (even in a high-interest term deposit).

But if you want to use the stock market to generate market-beating returns, ETFs are not the best place to be.

Foolish takeaway

We Fools think anyone has the potential to beat the market (although it’s not easy). But it does require dedication, patience, and the right temperament.

For some people, active investing in this manner just isn’t the right fit, and so index-tracking ETFs might be the best option for those individuals. But if you want to learn how to beat the market, you will have to branch out beyond index ETFs and dive into the world of finding good quality businesses to buy into.

More reading

• Don’t delay: Start investing today in shares to become rich
• How to invest $5,000 in ASX 200 healthcare shares today
• ASX 200 Weekly Wrap: Gold miners help edge ASX ever higher
• Here’s how to create a $1 million ASX portfolio by investing $1,000 a month
• Top brokers name 3 ASX shares to buy next week

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Is Whitefield Limited (ASX: WHF) the best ASX dividend share? It just grew its dividend in its FY20 result.

What is Whitefield?

Whitefield is a listed investment company (LIC). It’s one of the oldest on the ASX, it has been around since 1923.

Why Whitefield might be one of the best ASX dividend shares

It can point to a record of dividends that have been maintained or grown every year over the past 25 years.

In today’s FY20 result the LIC declared a final dividend of 10.25 cents per share, compared to 10 cents per share last year. That is in addition to the 10.25 cents per share it paid as the interim dividend, compared to the prior year’s 9.75 cents per share.

That brings the FY20 grossed-up dividend yield to 6.6% at today’s share price. I think that’s a solid yield in today’s environment. 

FY20 result

The ASX dividend share announced an operating profit after tax of $17.66 million. This equated to earnings per share (EPS) of 17.8 cents, a decrease of 3.7%.

Whitefield said that the financial year to March saw two periods. The first 10 months of the year saw moderately widespread dividend and distribution growth from a majority of shares in the portfolio. There was some weakness in the financial and banking sectors. However, the emergence of COVID-19 and the containment measures in February and March meant companies began to cut or defer dividends to preserve cash. I think we’re likely to see cuts for the next 12 months. 

Some of the businesses that delivered distribution growth was Brambles Limited (ASX: BXB), ASX Ltd (ASX: ASX) and Medibank Private Limited (ASX: MPL).

Whitefield’s portfolio return for the full year amounted to a negative 8.88%. This outperformed the S&P/ASX 200 Industrials Accumulation Index by 3.15%. I think that’s a solid performance. 

Whitefield’s outlook

The ASX dividend share said that the outlook is dominated by COVID-19. I don’t think that’s surprising. Remember its profit is determined by investment returns. The near-term is full of uncertainty and the financial impacts are “profound”. Whitefield said there is likely to be a very material downturn in both 2020 and 2021.

Whitefield expects to maintain its dividend in the December 2020 result, but said investors should be aware it may have to review its dividend payments if conditions continue to deteriorate.

Seeing as Whitefield is currently trading at around its net asset value, I’m not in a rush to say it’s a buy. But I think Whitefield is one of the best ASX dividend share ideas for conservative income.

More reading

• 2 ASX shares I would buy for growth and income
• Should ASX investors just buy ETF index funds for better returns?
• Where to invest $500 in ASX shares right now
• ASX 200 climbs 1% in positive start to the week
• Why this overlooked ASX 200 stock just got upgraded by 3 leading brokers to “buy”

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you have $500 to invest in the share market, I believe you should be thinking long term.

This is because brokerage costs (which are usually around ~$10 a trade) will eat into your profits if you are constantly buying and selling.

With that in mind, here are three top ASX shares which I think could be fantastic buy and hold investments:

Afterpay Ltd (ASX: APT)

I think this payments company would be a great buy and hold investment. Due to the growing popularity of buy now pay later as a payment method with consumers and retailers and its global expansion opportunity, I think Afterpay has the potential to become a payments giant over the next decade. In addition to this, it is worth remembering that the company has signed a strategic partnership with Visa to support the development of innovative new solutions. This could be another driver of growth in the future.

Kogan.com Ltd (ASX: KGN)

A second option for that $500 investment could be Kogan. It is a growing ecommerce company and the home grown equivalent of Amazon. While the company may not be destined for global domination like Amazon, I believe it has the potential to grow enormously in the local market thanks to the ongoing shift to online for shopping. At present only ~10% of consumer spending is made online, but this is likely to grow materially over the next couple of decades. With this tailwind in its sails, the future looks bright for Kogan.

Pushpay Holdings Ltd (ASX: PPH)

A final option to consider is another payments company, Pushpay. It provides a donor management system to churches and non-profits. The company’s sales have been growing at a very strong rate in recent years and look likely to continue doing so in the coming years. Management recently revealed that it has set itself a target of winning a 50% share of the medium and large church market. This represents a US$1 billion revenue opportunity for Pushpay and compares favourably to the operating revenue of US$127.5 million it recorded in FY 2020.

More reading

• This ASX fintech share is soaring again as the economy reopens
• 3 industries that may never recover from COVID-19
• Why all ASX investors should avoid this easy mistake in 2020
• Will the Afterpay share price stop at $40 or keep on running?
• The smartest shares to buy if you have $2,000

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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