While the journey to building substantial wealth with ASX shares might appear reserved for a select few, the truth is that anyone can achieve financial success in the share market.
This is simply by making consistent investments into ASX shares and embracing the power of compounding.
Long-term investing
The first thing for investors to accept is that there's generally no getting rich quickly with ASX shares.
Sure, every so often investors may unearth an ASX share that explodes and generates significant wealth very quickly, but they are unfortunately few and far between.
Instead, investors get rich slowly by making buy and hold investments. This strategy revolves around carefully selecting quality ASX shares and resisting the allure of frequent trading driven by short-term market fluctuations.
Legendary investor, Warren Buffett, once said:
Someone's sitting in the shade today because someone planted a tree a long time ago.
This encapsulates the essence of buy and hold investing perfectly. By making investments today with a long-term view, you will be reaping the rewards in the future.
Companies such as CSL Limited (ASX: CSL) and Macquarie Group Ltd (ASX: MQG) could be top candidates for this sort of long-term investment strategy.
Compounding is your best friend
The reason that buy and hold investing can make you rich is compounding.
Compounding, apparently described as "the eighth wonder of the world" by Albert Einstein, is the cornerstone of wealth creation.
It involves reinvesting your returns to generate additional returns on top of your initial investment. As your investments grow, the returns they generate begin to yield their own returns, creating an accelerating effect that propels your wealth accumulation.
For example, imagine you invest $10,000 in ASX shares and achieve the 30-year average annual return of 9.6%.
In the first year, you earn $960 in returns, taking your total to $10,960. In the second year, that same 9.6% return earns you $1,052. That's because you're now earning returns on your $10,960.
As this compounding cycle continues, your investment portfolio grows. In fact, if it did this for 30 years, your single $10,000 investment would end up being worth approximately $125,000.
And that's from one investment. If you could add to this each year, your returns (and wealth) would explode over time.
All in all, history shows that anyone can become rich with ASX shares. They just need a plan and the discipline to stick with it through the long run.
