If you're looking to start your investment journey, then I think you should look beyond short term trades and focus on investing for the long term.
This is because short term trading is a high risk endeavour and prevents investors from benefiting from the power of compounding.
What is compounding?
Compounding is what happens when you earn interest on top of interest – or rather, returns on top of returns for shares.
As of the end of June, the Australian share market has provided investors with an average total return of 8.76% per annum over the last 30 years.
This means that if you had invested $1,000 into the share market every three months ($4,000 per year) since 1990, your investments would have grown to be worth $567,000 today.
But what's more, thanks to the power of compounding, if you carried on investing this amount of money and earned the same return for a further five years, your portfolio would grow to $888,000.
That's a massive $321,000 added to your wealth in just five years thanks to compounding. Willing to go another five years? Then your investments would grow to be worth a staggering ~$1.4 million.
The key takeaway from this for me is that starting early gives you the best chance of creating significant wealth from the share market.
With this in mind, if you're an investor in your 20s or 30s, I would suggest you consider starting your journey with investments in a company with very strong long term growth potential.
Which ASX shares should you buy?
A few ASX shares that spring to mind immediately are payments company Afterpay Ltd (ASX: APT), donations and engagement platform provider Pushpay Holdings Ltd (ASX: PPH), and sleep treatment-focused medical device company ResMed Inc. (ASX: RMD).
I believe all three are in a perfect position to grow their earnings at a very strong rate over the 2020s. This could lead to their shares generating market-beating returns for investors.
