Achieving an ASX share portfolio worth $1 million is certainly a goal of mine and one that I (shockingly) have yet to accomplish.
Obviously, crossing the seven-figure mark is no easy feat. Yet I think my plan to get there will result in success. It involves three simple steps: investing in quality international and ASX shares, harnessing the power of time and compound interest, and investing as much capital as I can spare into the markets.
Let's begin at the start.
How I'm building a $1 million ASX share portfolio
The rate of return an investor is able to achieve is crucial to how long it will take their money to compound. As the rate of return rises, the time it takes for wealth to build reduces exponentially.
To illustrate, let's assume an investor gets an 8% rate of return on an initial $10,000 investment over 15 years. By the end of those 15 years, they will have approximately $33,000 to their name. But if that same investor manages a 10% return per annum, they will instead gain just over $44,500. That extra 2% makes a big difference.
So that's why I'm determined to find the best-performing ASX stocks on the market for my share portfolio. One of my favourites is Washington H. Soul Pattinson and Co Ltd (ASX: SOL). This investment house has managed to give its investors an average return of 12.9% per annum (including dividends) over the 20 years to 30 April 2023.
Another top holding of mine is the VanEck Morningstar Wide Moat ETF (ASX: MOAT). This exchange-traded fund (ETF) has been delightful to own over the past five years, returning an average of 16.67% per annum (to 30 June).
We've already talked about the stupendous power of getting a higher rate of return. That's compound interest in action. The other way to exponentially increase your returns is by maximising the time that you have to invest. I was fortunate enough to start my investing journey when I was relatively young. This will hopefully stand me in good stead.
To demonstrate, let's go back to our investor with $10,000.
Compounding: The eighth wonder of the world
We've already established that by obtaining a rate of return of 10%, an investor can turn $10,000 into $44,500 after 15 years. But imagine if we had 30 or 50 years to play with. Well, after 30 years, that $10,000 would be worth around $198,300. After 50, it rises to more than $1.4 million.
So someone who invested just $10,000 when they turned 20 would be enjoying a healthy retirement nest egg of close to $1.5 million by the time they turned 70.
Thus, it's clear that both time and our high rate of return can work exponential wonders when applied to an ASX share portfolio.
But let's discuss adding as much capital as we can along the way. That's our last step in the journey to a million-dollar ASX share portfolio.
We've established that we can get there over 50 years. But let's use 30 years as our baseline here.
As we established above, $10,000 at a 10% return will result in $198,300 after three decades. But say we add just $200 a month (or $50 a week) over that 30 years. That would grow our $198,300 into just over $650,000. If we can double that to $100 a week (or $400 a month), we would hit a tad over $1.1 million.
So as you can see, by finding quality ASX shares, understanding and using the power of compound interest and time and adding as much capital as we can, it's certainly not impossible to will a $1 million ASX share portfolio into reality.
