3 simple steps to become rich with ASX shares

Credit: Richard S

It doesn’t have to be difficult to become wealthy, in-fact it could be as simple as following three simple steps to become rich with ASX shares.

Let’s get straight to it:

Step 1: Put money in your brokerage account

You might think that’s extremely obvious. But sadly, most Australians don’t invest any money all. They’re missing out on the best wealth-creation tool – shares. It doesn’t require going through the ever-tougher bank lending requirements and it doesn’t require taking on a huge amount of debt like property investing does.

A lot of people have the potential flexibility with their budget to save a bit of money every year, or even every month, to invest in the share market. All you need is $500 to start, you don’t need $10,000 or $1 million to start investing in shares.

Step 2: Invest in a portfolio of high-quality shares

I think index funds are probably the best for the people that find investing really boring or just aren’t bothered about businesses. Just because you don’t like something doesn’t mean you shouldn’t do it. Index investing is very easy and doesn’t take much time. Some of the best index examples are iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS).

Otherwise, you might be able to produce better returns with a portfolio of long-term growth shares like Challenger Ltd (ASX: CGF), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (Soul Patts), Costa Group Holdings Ltd (ASX: CGC), REA Group Limited (ASX: REA), Magellan Global Trust (ASX: MGG), WAM Microcap Limited (ASX: WMI) and Duxton Water Ltd (ASX: D2O).

Step 3: Be patient, let your wealth compound

Compounding is the most powerful financial force. If you let it work its magic over time you will become very wealthy in 10 or more years.

Share markets will be volatile. All you need to do is sit tight on your investments, let the dividends keep flowing and let businesses make money for you.

Starting with $500 and investing $500 a month for 20 years compounding at 10% a year will reach $347,000 according to the ASIC MoneySmart compound interest calculator. If you invest more a month and/or achieve better returns than 10% a year your wealth will even grow even more!

If you want to compound your wealth even faster than 10% a year, then there could be better options out there on the ASX than, for example, Soul Patts.

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See the 5 stocks

Motley Fool contributor Tristan Harrison owns shares of Challenger Limited, COSTA GRP FPO, DUXTON FPO, MAGLOBTRST UNITS, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited, COSTA GRP FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended REA Group Limited and Vanguard MSCI Index International Shares ETF. 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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