If I had $5,000 burning a hole in my pocket and an aspiration to make a 1,000% return, I'd turn to the ASX and the shares that call it home.
There's no guaranteed path to turn $5,000 into $55,000, but there are a few strategies I would consider using if I were aiming for such an astronomical return.
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Investing in future 10-bagger ASX shares
The first is that which might come to mind quickest – investing in a share, or many, capable of gaining 1,000% or more.
That's certainly possible. ASX shares posting such gains over the last few years include lithium favourite Core Lithium Ltd (ASX: CXO), homewares retailer Temple & Webster Group Ltd (ASX: TPW), and software provider IODM Ltd (ASX: IOD).
In fact, the latter tech share has posted a gain of more than 4,000% over the last five years.
However, identifying future 10-baggers is far more difficult than scrounging up past winners.
If I were hunting for stocks potentially capable of rising 1,000%, I would start my search among the smaller end of town. There, I would look for shares in businesses I truly believe could make it. Personally, I would focus on those boasting a healthy balance sheet and a major competitive edge.
However, investing in stocks that look like they could be future multi-baggers generally demands a lot of patience and time. It also comes with a huge side of risk.
Thus, it's likely that I would miss my 1,000% target or even lose money if some of my picks underperform against my expectations.
Using Peter Lynch's strategy
Another approach I might consider when seeking a 1,000% return by investing in ASX shares would start at the other end of town. That is a strategy touted by investing great Peter Lynch – investing in 'stalwarts'.
Stalwarts are generally larger companies, like S&P/ASX 200 Index (ASX: XJO) shares, that haven't quite met their growth potential. Thus, they may be capable of moderately outperforming the market over a few years.
After a company's expected growth was realised, Lynch would sell out and reinvest in a new stalwart, thereby compounding returns. It's widely reported that Fidelity's Magellan fund returned an annual average of around 29% under Lynch's control.
If I could realise such a return, which is far from guaranteed, I could turn $5,000 into more than $55,000 in around 10 years. That's the power of compounding!
Take advantage of index funds
The final tactic I would consider is buying shares in an index fund tracking the ASX 200. This approach offers the least risk of the three.
Combining capital returns and dividends, the ASX 200 returned 9.3% on average over the 10 years to 2021.
While past performance doesn't indicate future performance, such a return could turn a $5,000 initial investment into $55,000 in 27 years.
