Do you want a million-dollar portfolio in 12 years starting from zero? Well, the good news is that this has been possible in the past and I suspect it could be possible again in the future.
The key to achieving this goal in the space of three Olympic games is to make consistent investments into high-quality ASX shares and hold onto them.
Doing this allows investors to benefit from compounding, which is something that Warren Buffett has spoken about many times before. In fact, the Berkshire Hathaway (NYSE: BRK.B) leader famously quipped that compounding has played a key role in his vast wealth. He said:
My wealth has come from a combination of living in America, some lucky genes, and compound interest.
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Aiming for a million with ASX shares
Firstly, it is worth highlighting that 12 years is a short period of time for going from zero to $1 million.
In light of this, we're going to need to put a decent amount of money into high-quality ASX shares each year. But don't worry if the figures discussed are outside your comfort zone, it's possible to achieve our target with lower investments if we increase our investment time horizon.
But for now, let's aim for $1 million in 12 years.
Over the last 30 years, the Australian share market has generated a total return of 9.6% per annum. It isn't guaranteed to do the same over the next three decades, but for the sake of this exercise, we're going to assume that it does.
Based on this, we would need to put $44,000 into the share market each year for 12 years to grow our portfolio to $1 million.
Alternatively, if you're lucky enough to be sitting on a sizeable cash balance, then you could reduce your yearly outlay. Starting with a $150,000 portfolio, you would need to invest $24,000 into ASX shares each year to grow your wealth to $1 million.
What about a longer time horizon?
Pleasingly, it would be possible to achieve our goal on a smaller budget.
For example, investing $10,000 into the share market each year would turn into $1 million in just under 25 years if you averaged a return of 9.6% per annum.
That may be twice as long as investing $44,000 a year, but it's less than a quarter of the investment. This demonstrates just how powerful compounding becomes the longer you leave it.
Let's finish on another Buffett quote that feels quite apt for this.
Someone's sitting in the shade today because someone planted a tree a long time ago.
