The ASX share market can be a great tool to grow wealth in my opinion. With how little work is needed to invest, and the historical track record of capital growth, ASX shares are my favourite type of investing. It could be a great way for someone in their 40s to build a six-figure portfolio.
Investing is a long-term task. It doesn't matter if someone hasn't built up much, or any, wealth yet.
Trying to get rich quickly would probably be a mistake, as this could lead to investing in stocks that are incredibly risky, with a low chance of it doing well.
Just look at how some of the hottest investments from the COVID era of cheap money have now dropped by more than 60%. A few of those names which could still generate big profits in the long term may be opportunities. But the valuation of some assets just didn't make sense to me in 2021 and may never return to that level.
Having said that, I do think there are a number of excellent investments that can do well over the long term.
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Decades of time left for compounding
A 40-year-old may have missed out on a decade or two of being invested. However, there are at least 25 years to a retirement age of 65. And wealth doesn't necessarily stop building at retirement — there are hopefully many decades ahead of living.
If someone were to invest $1,000 a month into ASX shares, it would turn into $1.18 million over 25 years if it achieved the historical ASX share market average return of 10% per annum, according to the Moneysmart compound interest calculator. In 21 years it would reach more than $500,000.
Of course, we don't know what the future returns will be. It could be worse than the average of 10% per annum, or it could also be better.
It will depend on what stocks investors choose and how they perform.
Which ASX shares to invest in?
The simplest way to achieve long-term returns could be to choose quality exchange-traded funds (ETFs) that are invested in quality businesses, such as Vanguard MSCI Index International Shares ETF (ASX: VGS) or VanEck Morningstar Wide Moat ETF (ASX: MOAT). The VanEck one is focused on companies with strong and enduring competitive advantages — it's my favourite ETF.
Another option could be to pick ASX blue-chip shares that already have a good track record in achieving long-term returns, including Wesfarmers Ltd (ASX: WES), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Premier Investments Limited (ASX: PMV), and Xero Limited (ASX: XRO).
It could also be interesting to look at some beaten-up ASX shares with long-term growth potential, but I would only make each position a relatively small part of my portfolio compared to the ETFs or the blue chips. Some of the names I like include Temple & Webster Group Ltd (ASX: TPW), Adairs Ltd (ASX: ADH), Shaver Shop Group Ltd (ASX: SSG), Volpara Health Technologies Ltd (ASX: VHT), Universal Store Holdings Ltd (ASX: UNI), and Reece Ltd (ASX: REH).
But, if I were trying to keep things simple with a smaller number of names, my favourite idea for long-term capital growth would be VanEck Morningstar Wide Moat ETF.
