The ASX share market is a wonderful vehicle for wealth creation. If we invest well and let time grow our money, we can reach $1 million and much more.
Compounding is a very powerful force – it's like planting a small sapling and watching it become a large tree after a number of years if it's left alone.
Reaching $1 million is certainly not easy, but I do think it's possible.
I should also add that although alluring, property investing can be more time-consuming because of all the paperwork and the potential hassle of dealing with tenants (or having no tenant). Plus, owning investment properties likely comes with hundreds of thousands of dollars of debt.
I'd rather invest debt-free with ASX shares, even if that means missing the benefit of leverage. The strength of shares and reinvesting can still deliver wonderful results.
Compounding
If an Aussie had $1,000 in a good bank account today, they could earn $50 of interest at a 5% interest rate after one year.
The ASX share market, on the other hand, has delivered an average annual return of approximately 10% over the ultra-long term. Of course, there have been some years with a much stronger return than 10% and some years with much worse returns.
The power of shares can really come through over the long term. If $1,000 was invested in shares, it could grow 10% to $1,100 after one year. But if it kept growing by an average of 10% per year, $1,000 would become almost $2,600 in ten years, $6,730 in 20 years, and more than $17,400 in 30 years.
That's with just $1,000 – imagine how a portfolio could grow if someone regularly invested.
Reaching $1 million with ASX shares
Everyone's finances are different, so some households may be able to save more than what I'm about to show, and other households may be working with a smaller number, at least for now.
Let's imagine instead of investing $1,000 as a one-off amount into ASX shares, we invest $1,000 every month. If it grew by an average of 10% per year, that amount would reach $191,000 after ten years.
After 20 years, it would reach $687,000.
After 24 years, it would reach $1.06 million. We've reached millionaire status!
After 30 years, it could become $1.97 million.
After 40 years, it could grow to $5.3 million.
What ASX share investments could help us get to those numbers?
Well, one of the easiest ways to invest in the share market is with exchange-traded funds (ETFs), which help us create a broadly diversified portfolio in a single investment.
The most popular ETF investment to get exposure to ASX shares is the Vanguard Australian Shares Index ETF (ASX: VAS), which owns 300 businesses.
An even better choice could be ETFs that own global shares that typically have better growth potential because they're aiming to grow internationally (which offers more potential customers than just staying in Australia and New Zealand).
In my view, the Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most effective options for gaining exposure to global shares.
Of course, investors can also add ASX growth shares to their portfolio, which could deliver stronger returns than the overall share market.
