Retiring a millionaire would be the dream for most, if not all, of us. What would be better than starting your golden years with the knowledge that you are financially independent and secure?
Yet most of us who are still working probably don't have a plan to get there. After all, compulsory superannuation payments are supposed to be our retirement safety net. But unless you're a high-income earner, relying on super alone is unlikely to get you that million without extra contributions.
But investing in ASX 200 shares can. Shares have proven themselves to be one of the best-performing asset classes over many decades. So it makes sense that harnessing the compounding power of ASX shares is one of the best ways you can get to a million-dollar retirement.
Take a simple index fund like the SPDR S&P/ASX 200 Fund (ASX: STW). This exchange-traded fund (ETF) has been around since the early 2000s. Since its inception in 2001, it has returned an average of 7.87% per annum (that's capital growth and dividend income combined). That's far better than most other asset classes, particularly cash.
How ASX 200 shares can get you to a million-dollar retirement
But let's illustrate the compounding potential of this simple index fund. If someone started investing $100 a week when they were 20 and kept on investing that same $100 every week until they were 65, at this rate of return of 7.87%, guess how much they would have by the end of their working life?
If you guessed $1 million, you're way off. This lucky investor would have a grand total of $2.19 million by the time they hit 65.
Say that same investor stretched to invest $150 every week. They would be exponentially better off, with a grand total of $3.29 million at their journey's end. But time does matter here — and it has a dramatic effect on that compounding process.
If this same investor still put away $150 every week but only started at age 30 instead of age 20, instead of $3.29 million, they would have just $1.45 million by age 65. Still a princely sum, but enough for a fair bit of self-flagellation for not starting sooner.
Now, there is no guarantee that investing in an ASX 200 index fund will get you that 7.87%. Perhaps the next two decades will deliver a lower return. Or perhaps it will be even better than 7.87%. But what we do know is that ASX shares can show a long track record of delivering some of the best returns you can get from investing.
So, yes, ASX 200 shares are certainly all you need to retire a millionaire. All you need is time and discipline.
