If you're lucky enough to have $50,000 in a savings account and no immediate use for it, then I think you should consider investing it into the share market with a long term view.
This is because you could turn these funds into a life-changing sum thanks to a combination of time and compound interest.
How is this possible?
As of the end of 2019, the Australian share market had provided investors with an average annual return of 9.5% over the last 30 years.
While we may not have started 2020 in a positive fashion, I remain confident that the local share market will deliver a similar level of return over the next three decades.
If this proves to the case, then a $50,000 investment could grow materially over the period.
For example, if you were to invest the $50,000 into the share market and earn the same return, you would have ~$125,000 in 10 years, ~$310,000 in 20 years, and then ~$760,000 in 30 years. That's all from just a single investment.
If you're happy with this potential return, then you could simply look to invest in an exchange traded fund (ETF) that tracks the S&P/ASX 200 Index (ASX: XJO). The BetaShares Australia 200 ETF (ASX: A200) allows investors to do this.
Another option is the Vanguard Australian Shares Index ETF (ASX: VAS), which gives investors exposure to the 300 shares listed on the S&P/ASX 300 index.
What if you beat the market?
Now, imagine if you could outperform the share market by a small margin each year.
Instead of an average annual return of 9.5%, what would happen if you achieved a return of 11.5% per annum?
With this level of return, your $50,000 investment in 2020 would be worth ~$150,000 in 10 years, ~$440,000 in 20 years, and a massive ~$1.3 million in 30 years.
While beating the market is hard, it is possible. Shares like REA Group Limited (ASX: REA) and ResMed Inc. (ASX: RMD) have consistently beaten the market over the last 15 years and appear well-positioned to continue this trend over the next decade.
The key is identifying companies with strong business models, positive long term outlooks, and competitive advantages.
