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Here’s how to make a $1 million portfolio by investing $1,000 a month

I think it’s entirely possible to become a millionaire by just investing $1,000 a month into ASX shares.

The most powerful tool you can use to help you get there is compound interest. Saving up $1 million without compound interest could take longer than your whole working life. If you put aside $20,000 a year it would take 50 years to reach $1 million without earning interest.

One of the smartest people to ever live, Albert Einstein, supposedly said “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”

If Mr Einstein thinks compound interest is a powerful force, you know you have to take advantage of it.

So how can we make the most of compound interest?

Earning bank interest might be the safest way to do it, but with interest rates so low I don’t think you’re going to get very far. Term deposits and bonds are in the same low-rate boat.

The best ways to benefit from compound interest are shares and property in my opinion. However, taking on a large amount of debt for property is a dangerous game. And property is actually falling in value right now.

On average, share indices like Vanguard Australian Share ETF (ASX: VAS) and iShares S&P 500 ETF (ASX: IVV) have returned an average of 10% a year over the long-term, which doesn’t include the franking credits for Australian shares.

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. That’s great, right? A 25-year old could be a millionaire before the age of 50.

The above scenario is only investing $1,000 a month, what if you could invest more than that? Or even better, if you can make returns of perhaps 12% a year the millionaire target would happen in under 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), Appen Ltd (ASX: APX) and Altium Limited (ASX: ALU). What you need to do is identify the winners of tomorrow.

Starting today, you have to find high-quality ASX shares that are undervalued and can beat the market, such as these top stocks

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Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia owns shares of A2 Milk and Appen 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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