I think that ASX shares are the best way to deliver long-term capital growth for investors.
To me, taking on a lot of debt is not an ideal way of growing wealth. It comes with a wipeout risk if the investor is unable to keep making the loan repayments. And I'm sure you've seen that interest rates have soared.
Over the long term, shares have delivered average returns per annum of around 10% — that's just an average. One year might see a fall of 10%, while the next year could see a gain of 20%.
If an investment goes up by 10% per year, it doubles in less than eight years. In 20 years, it achieves a return of around 570%.
No returns are guaranteed in the share market, but I believe that good businesses can deliver impressive results.
The simplest advice is to just regularly invest in a broad, ASX-listed ETF that tracks the Australian or global share market, re-invest the dividends, and be patient. Two fund options might be Vanguard Australian Shares Index ETF (ASX: VAS) and the Vanguard MSCI Index International Shares ETF (ASX: VGS).
It would take 17 years for a portfolio growing at 10% per annum to grow to $100,000.
However, I think it's definitely possible for some investments to deliver more growth than that. If $20,000 grows at an average of 12% per annum, it reaches $100,000 in just over 14 years.
I believe there are two areas that have a good chance of delivering a stronger-than-10% return.
ASX growth shares
Businesses that are growing their finances and operations at a faster-than-average speed can deliver better shareholder returns over time, in my opinion.
Over the last five to 10 years, we've seen big returns from names like Xero Limited (ASX: XRO), WiseTech Global Ltd (ASX: WTC), and Pro Medicus Ltd (ASX: PME).
Each business is very different, but I think there are a few factors they all share. They have a global growth plan; they have strong gross profit margins; their customers have long-term relationships; and they deliver software of some sort (which is extremely easy to replicate, enabling quick growth).
Having a solid balance sheet is also helpful for financial stability and growth.
Not every business is going to tick every single box. But, if they're priced fairly and have multiple attractive features, I believe they can do very well.
No one can say which ASX shares can deliver returns that outperform, but I currently like the look of Volpara Health Technologies Ltd (ASX: VHT), Siteminder Ltd (ASX: SDR), Frontier Digital Ventures Ltd (ASX: FDV), and Gentrack Group Ltd (ASX: GTK).
Certain ASX ETFs
ASX ETFs can give us a lot of diversification with just one investment. They can be invested in a particular sector or in an investment style.
I think some sector-based ASX ETFs are demonstrating good revenue growth and increasing profitability with global growth. One industry that meets these criteria is cybersecurity and video gaming. Here, Betashares Global Cybersecurity ETF (ASX: HACK) and VanEck Video Gaming and Esports ETF (ASX: ESPO) look interesting to me.
I also believe that quality-focused ASX ETFs have shown they can deliver solid returns because the underlying businesses have good attributes, such as strong competitive advantages. Although past performance is not a guarantee of future returns.
For example, the Vaneck Morningstar Wide Moat ETF (ASX: MOAT) has delivered average returns per annum of 15% over the past three years. VanEck MSCI International Quality ETF (ASX: QUAL) has achieved an average return per annum of 14.9% over the last five years.
Certainly, I think the MOAT ETF and HACK ETF are two that have a good chance of achieving market-beating returns at the current prices.
