ASX wealth can help us aim to build a $50,000 portfolio into a much larger portfolio worth $100,000, $250,000, or even $500,000.
It's certainly possible although I wouldn't recommend investors go for the riskiest, most speculative businesses on the ASX. Yes, there may be success stories of small businesses becoming huge, such as Pilbara Minerals Ltd (ASX: PLS), Northern Star Resources Ltd (ASX: NST), and Pro Medicus Ltd (ASX: PME). But they're very rare. There are plenty of companies that don't go anywhere.
Compounding is going to be key for helping with growing the portfolio while the returns and timeframe are key to how quickly we can build up wealth.
Using a compound interest calculator, a starting value of $50,000 can grow into $500,000 through an average of 10% per annum in just over 23 years. Over the ultra-long term, the ASX share market has delivered an average of 10% per annum.
Someone who is 40 years old with $50,000 could reach the $500,000 target before turning 65.
However, if I were looking to grow my ASX wealth potentially quicker than that, I think there could be a better way.
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Strong ETFs
I believe there are some exchange-traded funds (ETFs) that can perform better than 10% per annum.
There are some ASX ETFs that are based on quality metrics, whether that's qualitative or quantitative.
For example, the Vaneck Morningstar Wide Moat ETF (ASX: MOAT) is focused on businesses that have competitive advantages that analysts expect to (probably) endure for at least 20 years. Businesses only enter the MOAT ETF portfolio if they're seen as good value.
Since the MOAT ETF started in June 2015, it has delivered net returns of 16% per annum. If it kept that up, which isn't guaranteed at all, it could turn $50,000 into $500,000 after less than 15 years.
Another example is the VanEck MSCI International Quality ETF (ASX: QUAL), which is invested in a global portfolio of 300 names that have a high return on equity (ROE), stable year-over-year earnings growth, and low financial leverage.
Since the QUAL ETF was started in October 2014, it has delivered an average return per annum of 15.6%. If it kept making returns at that pace, it would turn $50,000 into $500,000 in just over 15 years.
ASX growth shares
Historically, there have been plenty of examples of businesses that have delivered capital growth of more than 10% per annum. But now that they're bigger, there's no guarantee that names like WiseTech Global Ltd (ASX: WTC), Altium Limited (ASX: ALU), and Xero Limited (ASX: XRO) can continue to generate strong capital growth from their current high valuations.
However, I think there are always opportunities to make wealth with smaller ASX shares that have the potential to grow substantially from here.
I like to regularly write about compelling businesses at appealing prices. Some of the ones I've covered recently include Lovisa Holdings Ltd (ASX: LOV), Johns Lyng Group Ltd (ASX: JLG), and Volpara Health Technologies Ltd (ASX: VHT). These are the sorts of businesses with an element of international growth that I think could outperform the S&P/ASX 200 Index (ASX: XJO) over the next five years if things keep going well.
