I'm a big advocate of buy and hold investing and believe it is one of the best ways to grow your wealth.
That's because it allows you to benefit from the power of compounding. This is what happens when you earn returns on top of returns. In many respects it supercharges them.
For example, if you were to generate a 10% return on a $10,000 investment in ASX shares you would end up with $11,000. That's $1,000 added to your wealth in the space of 12 months.
But if we were to fast forward in time and imagine 20 consecutive years of this, the annual addition to your wealth would be significantly greater.
The power of compounding
20 years of compounding a $10,000 investment in ASX shares by 10% per annum would turn into a massive $67,000.
And to demonstrate further just how powerful compounding can be, let's take a look at what one more year would add to our total.
If you remember back in year one, a 10% return added $1,000 to your wealth. But 20 years later, a 10% return would add approximately $6,700 to your investment account. That's two-thirds of your original investment that you are getting back over a 12-month period.
And the even better news is that this amount will only continue to grow if the returns are maintained.
It is worth noting that nothing is guaranteed in the share market. However, the S&P 500 has compounded by 10.2% per annum since 1965, so I think it is more than reasonable to target this level of return in the future.
But which ASX shares could be top buy and hold options?
There are a number of ASX shares that analysts rate highly and see as great long-term picks. Let's look at a couple.
The first to consider is biotechnology giant CSL Ltd (ASX: CSL). The team at Macquarie is feeling very bullish about the company's outlook and sees scope for its shares to rise to $500 by 2027.
This compares to its current share price of $276.76. In the meantime, the broker has an outperform rating and 12-month price target of $330.00 on its shares.
Another ASX share for investors to look at for the long term is Nextdc Ltd (ASX: NXT). It is one of the region's largest data centre operators with a collection of world-class properties in key locations.
Morgans believes its shares could rise to $40.00 within the next seven years. This compares to its current share price of $16.69.
As for the immediate term, the broker has an add rating and a $20.00 price target on its shares.
