I'd aim for a million by buying just a few ASX shares

It's the same strategy as legendary investor Warren Buffett after all.

| More on:
A woman has a thoughtful look on her face as she studies a fan of Australian 20 dollar bills she is holding on one hand while he rest her other hand on her chin in thought.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • I believe a million dollar portfolio can be built by investing a comparatively small amount in just a handful of market-beating ASX shares 
  • That's how legendary investor Warren Buffett built the majority of his fortune
  • But finding future market-beaters might not be as simple as the billionaire investor makes it look

Building a million-dollar portfolio might sound like a pipedream to many market watchers, but with the right strategy, know-how, and, arguably, luck, it can be done. Not only that, I'd argue it can be done by investing in only a handful of ASX shares.

Indeed, that's how investing great Warren Buffett built a fair chunk of his more than US$100 billion fortune. The strategy also helped his company Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE:BRK.B) post an average annual return of around 20% between 1965 and 2021.

Such a return would turn a $500 monthly investment into more than $1 million in just 20 years – before considering dividends. That's the power of compounding! Of course, past performance isn't an indication of future performance.

Here's how I would aim to build a $1 million portfolio by investing in only a few ASX shares.

Taking Buffett's lead

Fortunes can be made by choosing the right ASX share to buy at the right time.

For instance, investing $1,000 in Fortescue Metals Group Limited (ASX: FMG) shares back in the early 2000s could see a shareholder boasting a $1 million stake in the iron ore giant today.

Buying big into a small number of shares is the strategy generally employed by Buffett. Right now, nearly 75% of Berkshire Hathaway's US$296 billion portfolio is made up of just five shares.

The investing great famously once said:

We think diversification, as practiced generally, makes very little sense for anyone that knows what they're doing.

Of course, diversification plays an important role in many investors' portfolios.

Investing in a broad variety of ASX shares can protect an investor's assets in the event of a downturn in a single sector or company.

But, as Buffett points out, protecting against risk also lessens the chance of realising market-beating returns.

How to pick winning ASX shares

However, it's not easy to identify millionaire-making ASX shares. Even Buffett balances his statement by noting investing in a non-diverse portfolio demands a high level of knowledge and experience.

The billionaire touts his strategy of finding undervalued, quality shares. But more than that, he analyses an underlying business from top to toe, considering its balance sheet and competitive edges, before even thinking about buying in.

However, once he does snap up a stake in a company, he aims to hold tight for years to come. In the meantime, he largely ignores the market's movements.

While that's no easy task, it's how I would aim to build a million-dollar portfolio by investing in just a few potentially market-beating ASX shares.

Though, even a perfect portfolio is bound to experience rough days and downturns as the years go by. Additionally, any return on investment, or even downside protection, can never be guaranteed.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Dividend Investing

5 top ASX dividend shares to buy right now

Analysts think income investors should be loading up on these shares.

Read more »

Two adults and a child look happy as they walk through airport with child sitting on suitcase.
Dividend Investing

Will Qantas shares pay a dividend in 2024?

Will the dividends return this year? Let's find out.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Dividend Investing

2 market-leading ASX dividend stocks to buy in April

Analysts have put buy ratings on these market-leaders.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Man holding Australian dollar notes, symbolising dividends.
ETFs

Want the latest dividend from the Vanguard Australia Shares ETF (VAS)? Here's what you have to do

If you want to bag the latest VAS dividend, here's what you need to do.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Dividend Investing

Investing for passive income? Keep any eye out for that boosted Telstra dividend today!

If you own Telstra shares, keep an eye out for that juicy dividend payout today.

Read more »

Couple at an airport waiting for their flight.
Cheap Shares

Is Qantas a bargain ASX 200 stock today?

Analysts at Goldman Sachs think the Flying Kangaroo could be dirt cheap.

Read more »

Person holding a blue chip.
Blue Chip Shares

2 ASX blue-chip shares I'd buy with $3,000 right now

These are large businesses with compelling futures.

Read more »