The Motley Fool

How rich can you become?

One my favourite mind games to play is ‘what if’ games. It can be fun thinking about various things or scenarios and weighing up what you’d do.

Lots of people like thinking about what they’d do if they won $2 million in the lottery. But, there’s a much easier way to become that rich – compounding wealth with shares.

You shouldn’t feel like it’s impossible to become a millionaire, even if you earn below the average wage.

If you invest just $500 a month and earn an annual 10% compound return on that money over 10 years your portfolio would be worth $102,422. In 20 years it would be worth $379,684. In 30 years it would be worth $1.13 million.

That’s simply putting in $500 a month and earning the average historical share investment return. Easy!

If you could invest a bit more, say $750 a month, and slightly beat the market by achieving 11% returns then after 10 years you’d have $162,749. In 20 years it would be $649,229 and in 30 years it could be $2.1 million.

If we bump up the numbers just a bit higher to investing $1,000 a month and achieving 12% returns in 10 years it could be a balance of $175,829, in 20 years it might be $752,834 and in 30 years it could be $2.66 million.

The above calculations are not impossible at all. Saving $1,000 a month would be quite possible for a lot of households if they were careful with money. Achieving returns of 12% per annum is a lot less than Warren Buffett’s long-term average. Indeed, it’s only beating the market by only 2% a year.

Foolish takeaway

You can fairly easily outperform the market over the long-term by investing shares that have promising futures, good economics and a decent balance sheet such as Costa Group Holdings Ltd (ASX: CGC), Challenger Ltd (ASX: CGF) and Citadel Group Ltd (ASX: CGL).

Another market-beating share idea to create returns of 12% per year or more is this hot stock which is an industry leader in Australia and is now expanding to Asia. Indeed over the past three years it has generated returns of an average of 31% per year.

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You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and COSTA GRP FPO. The Motley Fool Australia owns shares of and has recommended Challenger Limited and COSTA GRP FPO. The Motley Fool Australia owns shares of Citadel Group Ltd. 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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