Becoming a millionaire is the dream of many Australians.
Winning one of the Tabcorp Holdings Limited (ASX: TAH) lotteries may be the quickest way to reaching this milestone, but unfortunately the odds of you winning are incredibly slender.
The good news is that anyone can become a millionaire, and you don't have to be earnings the big bucks to do it.
The national median wage has been estimated to be in the region of $55,000 a year. Growing a $1 million nest egg on this salary may not sound achievable, but it is a lot more attainable than you imagine.
All you need is discipline and time.
According to Fidelity, as of the end of the last financial year, over the last 30 years the Australian share market has provided an average return of 9.2% per annum.
If it were to provide the same level of return each year over the next 30 years, you could be a millionaire in three decades if you can put aside $542 of your monthly salary to invest in the share market.
That's right. A $6,500 investment each year for 30 years earning the market return would compound and be worth just a touch over $1 million.
Incredibly, if you have even more time on your side and can invest over a 40-year period, then you wouldn't need to invest anywhere near as much.
With a 40-year investment timeframe just $2,750 a year or $230 a month would be necessary to reach that million-dollar goal.
Interesting side note, over a 40-year period the $6,500 annual investment earning a 9.2% per annum return would grow to be worth a cool $2.5 million. Those latter 10 years are where the magic of compounding really makes the biggest impact.
What now?
While you could simply put the funds into a low cost exchange traded fund that tracks the return of the Australian share market, you could also look at shares that have the potential to be market beaters over the long term.
Companies like biotherapeutics giant CSL Limited (ASX: CSL), property listings company REA Group Limited (ASX: REA), and online travel agent Webjet Limited (ASX: WEB) all have long track records of providing market beating returns for shareholders and I believe they can do the same over the next decade.
