What kind of return could I expect by investing $200 monthly into ASX shares?

Investing $200 a month can make anyone rich. All you need is time.

| More on:
Piggy bank on tropical island with sunglasses on, sipping a fruity cocktail

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investing in ASX shares can be a truly rewarding experience in every sense of the word. But many investors avoid the stock market due to the perception of it being a risky place to keep their money.

While this is true to a certain extent, the reality is that if you invest prudently, the chances of obtaining a compelling rate of return on your money are a lot higher than you losing your hard-earned dollars.

Today, we're going to prove this concept out by looking at what kind of return an investor can expect by ploughing $200 a month into ASX shares.

Assigning an absolute rate of return from the share market is a tricky task. Obviously, each stock portfolio is different. If an investor owns Commonwealth Bank of Australia (ASX: CBA), BHP Ltd (ASX: BHP) and CSL Ltd (ASX: CSL) shares, they are going to have a completely different experience than someone who buys Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW) and Xero Ltd (ASX: XRO) shares.

To get around this problem, let's look at the returns one can expect from an ASX index fund. Index funds are popular investments on the Australian stock market. They allow investors to own a vast swathe of ASX shares in one single investment.

Your typical ASX index fund will hold either the largest 200 or 300 shares on the Australian markets, weighted towards market capitalisation (company size).

In this way, an ASX index fund will give you something akin to an average return of the entire ASX. As such, it's a great investment to analyse if you're wondering what the average return from the Australian stock market might be.

What kind of returns can one expect from ASX shares?

The Vanguard Australian Shares Index ETF (ASX: VAS) is an exchange-traded fund (ETF) that also happens to be the most popular index fund on the ASX. It tracks the S&P/ASX 300 Index (ASX: XKO), which means it gives its investors diversified exposure to the largest 300 individual stocks on our share market, including the six named above.

So what kind of returns can we expect from this ETF? Well, We should never use past performances as an oracle of future returns. However, this index fund has returned an average of 8.98% per annum (as of 31 May) since its ASX inception in May 2009. That 8.98% consists of both capital gains and dividend returns.

Let's assume VAS continues to appreciate at this rate for argument's sake. If one invests $200 every month into this index fund, it will build up to a portfolio worth $15,390 after five years of investing. That would grow to $39.148 after ten years and to $134,486 after 20 years.

If someone kept up this simple habit over a 40-year working lifetime, they would be left with a nest egg of $937,881.

If that investor managed to increase their monthly contribution to $300, they would be looking at a 40-year balance of roughly $1.41 million. That's more than enough for a comfortable retirement, even if we don't account for superannuation.

This exercise just goes to show the power of investing consistently in compounding assets.

Motley Fool contributor Sebastian Bowen has positions in CSL, Telstra Group, and Vanguard Australian Shares Index ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Xero. The Motley Fool Australia has positions in and has recommended Telstra Group and Xero. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A young woman sitting in a classroom smiles as she ponders lessons learned.
How to invest

3 things I've just learned from this billionaire investor

Let's learn from seasoned billionaire investor Howard Marks.

Read more »

Happy couple enjoying ice cream in retirement.
How to invest

I'd buy Woodside shares today to generate $1,000 of monthly passive income

At the current share price, I think Woodside can continue to deliver market-beating, long-term passive income.

Read more »

A couple lying down and laughing, symbolising passive income.
How to invest

No savings? I'd use the Warren Buffett method to earn lifelong passive income with ASX shares

Learn how to invest from Warren Buffett.

Read more »

Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office
How to invest

Investing in ASX shares? Why CEO pay DOES matter when misaligned

Wonder who topped the highest-paid CEO table?

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
How to invest

Could investing $10,000 in ASX shares make you a millionaire?

Is this the key to becoming wealthy? Let's find out more.

Read more »

A man in his late 60s, retirement age, emerges from the Australian surf carrying a surfboard under his arm and wearing a wetsuit.
How to invest

Looking to boost your retirement with extra passive income? Try this!

Securing a passive income stream could offer a big lift to your retirement lifestyle. Here’s how I’d go about it.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
How to invest

These ASX 200 stocks turned $20,000 into $100,000+ in 10 years

Big returns were made by investors buying these shares back in 2014.

Read more »

Emotional euphoric young woman giving high five to male partner, celebrating family achievement, getting bank loan approval, or financial or investing success.
How to invest

7 tips for successful ASX shares investing: expert

AMP chief economist Shane Oliver shares what he has learned over 40 years in the game.

Read more »