Building an ASX portfolio of shares with a value of a million dollars is hard, yet doable. What you need is the right mindset, the right investments, the right amount of time and the secret ingredient of compound interest!
Let's get into the nuts and bolts of a million-dollar portfolio.
The path to a million
If you were building a portfolio with monthly $1,000 contributions, it would take just over 61 years to accumulate a million-dollar portfolio if you used term deposits and savings accounts that pay a 1% interest rate.
But that's where ASX shares come in.
See, by investing in growth assets like shares, you can get a return that's far above what a high-interest bank account will provide these days.
Let's take a simple ASX index fund like the Vanguard Australian Shares Index ETF (ASX: VAS). This exchange-traded fund (ETF) has delivered an average return of 7.63% per annum since its inception in 2009.
Investing your $1,000 a month in this ETF will shorten these 61 years to just 26.5 years if we assume the same rate of return and reinvest all dividends.
But let's say you learn all about investing, take some of the lessons we Fools try and divulge for good investing practice and manage to invest for a higher return than a broad market ETF – let's say we're aiming for a 10% return per annum.
Then, the 26.5 years will be whittled down to 22.5.
If you manage an exceptional 15% per annum? It's 17.5 years, and on and on it goes.
Now you can understand how the great Warren Buffett became a billionaire over his life by managing a compounded rate of return above 20% per annum!
How hard is it to beat the market?
Of course, beating the market over 20 years is difficult – most ASX investors don't manage it. But if you find great companies, invest in them at a great price (or even just a good price), and don't do anything silly (like sell the shares in a crash), you can do it.
And you don't even need to find too many winners – just one can be enough to propel an ASX portfolio to market-beating returns. Warren Buffett has 99% of his capital in just one company (Berkshire Hathaway), after all.
And that's how you can build a $1,000,000 ASX share portfolio by investing $1,000 a month.
It's no summer project, that's for sure! Your success with investing will dictate just how long it will take. But for investors with the ambition and the patience, it can be done.
