It is entirely possible to make a $1 million portfolio by only investing $1,000 a month into ASX shares.
The key to achieving that goal is the power of compound interest. If you try to save up $1 million without taking advantage of compound interest you're not going to get very far. It would take 20 years saving $50,000 a year without earning any interest.
"Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn't… pays it."
The above quote was by Albert Einstein, so if one of the smartest people in the world thought compound interest is good, you bet you need to take advantage of it.
What's the best way to do it?
Well, interest from bank accounts might be the safest. But most bank accounts are offering rates below 3%, which won't compound quickly. Term deposits are in the same boat. Bonds aren't much better.
I think property and owning businesses are the only two ways to go. However, I don't think taking on huge levels of debt is a wise idea, particularly in this era of falling property values.
On average, share indexes like Vanguard Australian Share ETF (ASX: VAS) and iShares S&P 500 ETF (ASX: IVV) have returned an average 10% a year, which doesn't include the franking credits.
If you invest $1,000 a month and it compounds at 10% a year it would take under 24 years to reach your $1 million goal. Not bad right? A 25-year old could be a millionaire before the age of 50.
Imagine how much you could create if you invested more than $1,000 a month over that time. Or even better, if you could make returns of say 12% a year the millionaire goal would happen within 22 years.
How do you generate better returns? Well if you had a time machine you'd go back in time and invest in shares like a2 Milk Company Ltd (ASX: A2M) and Altium Limited (ASX: ALU). But you'd need to identify the winners of tomorrow.
