The stock market can be a wonderful place to build wealth without having to take on debt. However, it may be a challenge to decide where to start investing in ASX shares.
There are thousands of businesses listed on the ASX to choose from, and many different opinions suggest which ones are the best investments.
We don't need to find the next Microsoft, Amazon, or Nvidia to grow our wealth at a pleasing pace. The ASX share market has delivered an average return per year of close to 10% over the ultra-long term. That level of return can double $1,000 into $2,000 in less than eight years and then $2,000 into $4,000 in less than eight years after that.
We also don't need to behave like fund managers with our portfolios to try to find the absolute best value companies. There are some great investment tools out there, such as exchange-traded funds (ETFs), that can help our wealth grow with a simple strategy.
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Exchange-traded funds
Anyone can utilise exchange-traded funds for their portfolios. It enables people to buy a group of shares in a single investment. Different ETFs target different shares or assets.
For example, there are ETFs aimed at ASX shares, US shares, global shares, European shares, Asian shares, property or even bonds.
There are a few ETFs out there that own a whole bunch of different funds within them – a fund of funds. They offer a lot of diversification – examples include the Vanguard Diversified High Growth Index ETF (ASX: VDHG) and the BetaShares Diversified All Growth ETF (ASX: DHHF).
Investors can also choose to invest in all-share ETFs that are focused on the global share market. This market is home to many of the best businesses, which make huge profits, have strong competitive advantages, and deliver impressive profit margins.
If I were starting to invest in ASX shares, I would choose to invest in great ASX ETFs such as the Vanguard MSCI Index International Shares ETF (ASX: VGS), the BetaShares Global Sustainability Leaders ETF (ASX: ETHI), and the BetaShares Global Quality Leaders ETF (ASX: QLTY). These ETFs offer a useful combination of diversification and strong long-term returns.
But it's not the only way to invest.
ASX blue-chip shares
Aussies can also decide to start investing their money into strong companies that they recognise. That could be reassuring for investors.
Blue-chip companies can be industry leaders that have major size and brand benefits compared to smaller competitors.
It may be reassuring to invest in companies that we know and perhaps even use in everyday life. But, I would only want to invest in businesses that have appealing growth potential.
For example, Telstra Group Ltd (ASX: TLS) is the country's biggest telco and continues to win subscribers and deliver stronger underlying mobile profit margins.
Wesfarmers Ltd (ASX: WES) owns Kmart, Bunnings, and Officeworks, among other impressive businesses. It continues to grow its profit as it attracts more customers.
Goodman Group (ASX: GMG) is building a global portfolio of industrial properties, including data centres.
REA Group Ltd (ASX: REA) owns realestate.com.au and is rapidly expanding in India. Whether someone starts investing in ASX shares with ETFs or individual companies, the stock market can help build wealth for the long term.
