If I were able to save $450 per month to invest in ASX shares, I'd want to aim for $1 million over the long term.
Saving is a bit trickier these days with how much higher interest rates and inflation has gone. Whatever happens next, I believe (ASX) shares will be able to deliver the best chance of good returns.
Businesses have a wonderful ability to compound their profit worth thanks to factors like profit re-investment, population growth and long-term inflation.
A company can grow its profit if it opens a new store, launches a new product or grows into a new country. Population growth means there are more customers. Inflation is an underlying boost for revenue and profit if it can steadily grow prices without providing anything extra to the customer.
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How I'd invest $450 a month into ASX shares
Firstly, I'd acknowledge to myself that investing $450 a month is a solid amount, but it's going to take an extended period of time to reach $1 million.
Saving $450 a month translates into $5,400 a year. Assuming no investing and no interest, it would take 185 years to reach $1 million – that's too long!
As someone working full-time, it'd make more sense for me to concentrate on investments that could deliver good capital growth, otherwise I'd be handing over a significant chunk of the return I make each year to the ATO.
'Growth' can mean different things to different investors. I'm not advocating going for the riskiest technology or biotech ASX share, but I'd aim for investments that are delivering solid operational growth at a nice valuation.
If I were just starting out, I would want to choose investments that can provide me with instant diversification, potentially good returns and be a core part of a portfolio.
I really like the investment business Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which is invested in a variety of businesses and assets across Australia. It has grown its annual dividend every year since 2000.
Vaneck Morningstar Wide Moat ETF (ASX: MOAT) owns a diversified portfolio of US businesses that have strong competitive advantages that are expected by Morningstar analysts to almost certainly endure for at least a decade.
After that, I'd add a few more ASX shares and exchange-traded funds (ETFs) that also offer a good chance of pleasing long-term capital growth such as Wesfarmers Ltd (ASX: WES) and Betashares Global Cybersecurity ETF (ASX: HACK).
Capital growth calculations
I believe that the above four names I've mentioned will be able to deliver an average capital growth return, excluding dividends, of at least 10% per annum over the long term. We can conservatively add an average 1% dividend yield to the return as well, in my opinion.
If I invested $450 per month and my portfolio makes an average of 11% per annum, I could get to millionaire status in 30 years.
While that's not exactly a short amount of time, I'd say it's pretty good considering I'd only be investing around $5,500 per year. Remember, just saving it all in cash would have taken over 180 years.
