The ASX share market can be the ticket to becoming a millionaire in two decades — or even quicker if things go well.
Now, I'm not about to say that investors should jump in and buy the next hottest thing to get rich. That has the potential to turn out badly.
However, investors may be wondering about the best way to become wealthy. Personally, I prefer investing in ASX shares because of how little groundwork is required, and unlike property investment, you don't have to take on piles of debt to participate.
These days, people can get a decent return from savings accounts. But I don't think they're the best choice for growing wealth. Saving is good, but it could take a lot of money to become a millionaire through a savings account.
Let's say we use a savings account with an interest rate of 3.5%. Someone would need to save around $3,000 per month to get to approximately $1 million after 20 years.
How ASX shares can accelerate wealth
Here's an example of how ASX shares can produce good returns for investors.
At 31 December 2022, Vanguard Australian Shares Index ETF (ASX: VAS) had returned an average of 8.5% per annum over the prior 10 years. The average has now increased given the exchange-traded fund's (ETF) recent performance, up around 9% since the start of 2023.
If someone put $2,900 per month into the ASX share market and that investment returned an average of 9% per annum over the next 20 years, this would become $1.78 million.
But, we're not aiming for $1.78 million.
To get to $1 million, we'd only need to invest $1,650 per month if our investments returned 9% per annum.
What to look out for
The ASX share market is a good place to invest. However, it's dominated by large bank and mining shares such as Commonwealth Bank of Australia (ASX: CBA), ANZ Group Holdings Ltd (ASX: ANZ), BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
These giants are very good at what they do, but they're already huge, so I'm not sure how much more some of these names can grow.
Smaller companies or those targeting the global economy could have better growth potential over the long term. They have a longer growth runway and more room to re-invest.
I think we can see this with the returns generated by Vanguard MSCI Index International Shares ETF (ASX: VGS), which has returned an average of 10.6% since its inception in November 2014. If this ETF were to achieve the same returns over the next two decades, with its portfolio of global shares, investors would only need to invest $1,370 per month.
Which investment options could outperform?
I believe that there are some ASX growth share investments that can achieve stronger returns than 10%.
Smaller businesses could deliver a lot of growth. I think names like Airtasker Ltd (ASX: ART), Temple & Webster Group Ltd (ASX: TPW), Adore Beauty Group Ltd (ASX: ABY), Lovisa Holdings Ltd (ASX: LOV) and Healthia Ltd (ASX: HLA) could grow a lot over the next decade.
But, there are also some other options that could deliver outperformance. ETFs such as VanEck Morningstar Wide Moat ETF (ASX: MOAT), VanEck MSCI International Quality ETF (ASX: QUAL) and Betashares Nasdaq 100 ETF (ASX: NDQ) could deliver good growth from the current valuations.
