The road to becoming a millionaire with ASX shares isn't as hard as you might think.
Every year, the share market mints new millionaires and there's nothing to stop you from being one of them in the future.
The secret is to find an investment strategy that works for you, your budget, your age, and your risk appetite.
But let's take a look at one way I could make $1 million by investing in ASX shares.
Making $1 million by investing in ASX shares
When it comes to investing, time and compounding are your biggest friends. Time needs no explanation, but compounding perhaps does. It is what happens when you generate returns on top of returns.
The longer you keep these friends close to you, the more your wealth will grow.
Over the long term, the Australian share market has generated an average total return of approximately 10% per annum.
There's no guarantee that it will do the same again in the future, but we're going to base our calculations on the assumption that it does.
With that in mind, starting from zero, if I were to invest $1,000 into ASX shares each month and matched the market return, it would take me approximately 23 years to grow my portfolio to the $1 million mark.
Getting there quicker
If I want to get there quicker, there are two options. One is by achieving a better return, the other is putting more capital into ASX shares.
The first is certainly possible. Investing in high-quality shares that have strong business models, fair valuations, and sustainable competitive advantages could get me there. Companies such as CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG), and WiseTech Global Ltd (ASX: WTC) may tick these boxes.
But it's never a good idea to rely on beating the market. As a result, I think it is better to focus on putting more capital into the market than trying to outperform. At least this way if I do end up with a market-beating portfolio, I'll be even better off.
By putting $2,000 into ASX shares each month and matching the market return, it would take a touch under 17 years to grow my portfolio to $1 million.
This means that someone in their early 30s with enough spare capital could conceivably become a share market millionaire by the time they are 50. But why stop there! With compounding working its magic, I could really start to benefit.
For example, it may have taken 17 years to get to $1 million. But it will only take another 6 years to get to $2 million. Food for thought!
