So you have $50,000 in savings? Congratulations! That's likely to be an amount far higher than what the average Aussie saver has at their disposal. But having that cash just sitting in the bank is a wasted opportunity.
Sure, successive (some might say relentless) interest rate rises will mean that you're probably getting the best interest rates for your savings than you have in at least a decade. But they're probably still not high enough to account for inflation, especially when you consider that you have to pay full tax on interest income.
As such, if I had 50 large in the bank, I would turn to investing in ASX shares instead.
For one, ASX shares have proven to historically deliver far higher returns than cash investments over any long period of time. If you don't believe me, then check out this wonderful piece from our chief investment officer Scott Phillips.
ASX shares also have the potential to deliver favourable tax benefits that cash just can't match. I'm of course talking about franking credits here.
But how would I invest $50,000 with the intention of growing it into $250,000? That's assuming this amount isn't set aside for emergencies of course.
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How I would try and turn $50k into $250k with ASX shares
Well, there are several options. You could try investing in individual ASX shares of course. One of my favourite ASX shares is investing house Washington H. Soul Pattinson and Co Ltd (ASX: SOL). Soul Patts is one of the oldest companies in Australia.
It has used its long life wisely by building up a reputation as a prudent wealth manager for its investors. Today, it owns a huge portfolio of other ASX blue-chip shares, as well as other assets including private equity and credit.
In a recent investor presentation, Soul Patts revealed that its investors have enjoyed a total shareholder return (growth plus dividends) of 12.9% per annum over the 20 years to 30 April 2023.
If you invested your $50k into Soul Patts 20 years ago, you wouldn't have $250k today, you'd have $566,042. Of course, past performance is no guarantee of future success. But it does indicate (at least in my view) that Soul Patts' management has a clue about how to invest properly.
But choosing a range of quality individual companies and building a diversified portfolio of multiple shares can be a tricky and time-consuming process. So if you'd rather have a simpler solution, you could always use an exchange-traded fund (ETF).
ETFs: the simplest way to $250k?
ETFs represent collections of shares, rather than one individual company. The most popular ETFs on the ASX are index funds These track hundreds of the largest companies on the ASX. One option would be the popular Vanguard Australian Shares Index ETF (ASX: VAS).
This fund represents an investment in the largest 300 shares on the ASX by size. That includes everything from Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) to Telstra Group Ltd (ASX: TLS) and Harvey Norman Holdings Limited (ASX: HVN).
The beauty of an index fund like VAS is that you don't have to read annual reports or choose individual companies. It's bottom-drawer, passive investing at its finest.
This Vanguard ETF has averaged a return of 8.71% per annum since its inception in 2009. If this ETF can continue to offer this rate of return going forward, it would take just under 20 years for your $50k to grow into $250k. If you invested an extra $100 per week, you'd cut that down to 13 years.
But if you left it in the bank (with no extra investment), and you were able to bag yourself an interest rate of 4%, have fun waiting the 45 years or so it would take to get to the same final sum.
So if I had $50,000 just sitting in my bank account, that's how I would endeavour to turn it into $250,000 as quickly as possible. Investing takes time. But it sure does reward the patient.
