The ASX share market has plenty of options for investors to choose from to build wealth. An adult can start investing at any age – 20, 30, or even 70.
One of the most powerful tools we can use to help grow our finances is compounding. Albert Einstein, once supposedly said:
Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.
The longer we give compounding to work, the easier it is. But that doesn't mean it's not worth doing if we haven't started as early in life as we'd like.
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Wealth-building examples
I think one of the easiest ways of showing how ASX shares can build wealth is with a compound interest calculator.
If someone was 30, had $0 invested, and decided to invest $500 a month, with a share portfolio returning an average of 10% per annum, it would grow into $343,650 after 20 years and almost $1 million after 30 years.
Investing $1,500 a month grows into $1.03 million after 20 years and $2.96 million after 30 years if it compounded at 10% per annum.
Don't forget that employees are meant to receive superannuation contributions which can play a big part in wealth building. Indeed, superannuation contributions could make up the majority of the necessary money needed to build someone's net worth to more than $1 million.
However, which ASX shares to invest in is an entirely different question.
One of the easiest investment options is an exchange-traded fund (ETF). An ETF allows investors to buy a whole group of shares at once, rather than having to buy one investment at a time. It can save a lot of time and brokerage fees, as well as enabling investors to track the market return for a low fee.
The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most diversified ETFs with more than 1,400 holdings across the world. The US has by far the biggest allocation of any country because that's where many of the world's global leaders are based, such as Apple, Microsoft, Alphabet, Amazon.com, Johnson & Johnson, Exxon Mobil, Berkshire Hathaway, and Nvidia.
Since its inception in November 2014, the ETF has returned an average of 10.6% per annum, though the past is not a guarantee of future results.
Which other ASX shares could generate good returns?
I think the best investment strategy is to invest for the long term. In terms of which ASX shares could be good investments for at least a decade or longer, names like VanEck Morningstar Wide Moat ETF (ASX: MOAT), Wesfarmers Ltd (ASX: WES), and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) could make good returns for investors in my opinion.
It's never too late to start investing. I would love to build a $1 million portfolio myself but it's going to take a lot of work to get there.
