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How to use ASX shares to become a millionaire

If you’re anything like me, you’re probably hoping your investment in ASX shares will make you a millionaire. But when the S&P/ASX 200 Index (ASX: XJO) plummets lower it can make you question your investment strategy.

But the reality is that the maths behind investing is quite straight forward. Let’s take a look at how ASX shares can help you become a millionaire by the time you reach retirement.

How to use ASX shares to become a millionaire

Let’s check out an example to demonstrate. Consider your average 35 year old investor with a diversified ASX share portfolio. To keep things simple, we’ll ignore taxes and brokerage on shares and assume an 8% per annum average return with dividends reinvested.

This average investor starts with $50,000 in ASX shares and adds $5,000 per year to his portfolio. 

Graph by author

What we can see is that, through the magic of compound interest, his investment in ASX shares can most definitely make this investor a millionaire by the retirement age of 65. Even 10 years prior to retirement, this ASX share portfolio is worth $461,858. However, by retirement age, the portfolio has more than doubled to $1,069,549 and the investor has become a millionaire.

How can you do the same with your ASX share portfolio?

So, what does this example really tell us? The answer is that a diversified share portfolio and long-term outlook can really pay off in the future.

While the Afterpay Ltd (ASX: APT) share price might have rocketed 400% higher since mid-March, it’s not a wise strategy to put all your eggs in one basket.

By constructing a portfolio of high-quality ASX shares and holding for decades ahead, you could generate the 8% per annum average return illustrated in this example.

Of course, it’s wise to invest only what you can afford to lose. You don’t want to be forced to sell at a bad time because you over-invested and suddenly need that cash back.

It’s also important to remember that it’s never too late to start investing. Every day your money is in the market is a day that it can potentially be working towards make you a millionaire.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.