One day, I'd love to be able to say I have a $1 million portfolio of ASX shares. I'm purposely targeting that net worth target with ASX shares rather than other asset types.
I think there are a number of characteristics that make ASX shares very attractive compared to property, bonds, cash, cryptocurrency and so on.
I'm not expecting to reach millionaire status any time soon, but the following factors may be very helpful to help with my portfolio ambitions.
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Strong compounding potential
ASX shares can deliver very good returns for investors because of their ability to increase net profit. And then grow profit in the following year. And the next year.
Compounding can help turn a good financial number into a very good number after a few years.
Businesses are doing their best every year to grow their revenue and profit. If a business grows its net profit at an average of 8% per year, its profit would double in ten years. This would help justify the share price to approximately double as well.
Some of the best companies have the ability to continue investing and unlocking further growth, whether that's geographic expansion, offering a new product or service, or making acquisitions. This means they can deliver strong investment returns for longer than you'd initially expect.
Don't need to take on debt
I like investing in assets, but I don't want to take on debt to do so.
Leverage is one of the powerful aspects of investing in property because it can significantly increase the effectiveness of your investment.
While it is possible to use debt to invest in shares, it usually comes with a higher interest rate.
A regular Aussie doesn't need to take on debt to invest because the transaction costs are very low and we can buy small parcels of shares. Some brokers let Aussies invest with $500.
Investing without debt suits me and that's how I plan to continue investing.
Passive income
Owning ASX shares can provide a pleasing level of income, whereas residential property and crypto generally don't have the same potential to deliver investment income.
I like to own ASX shares that pay dividends because they can provide a pleasing mixture of dividends and capital growth. I like the fact that I'm being rewarded just for owning a piece of that investment.
Two of my favourite ASX shares that I'm hoping will help me reach $1 million in the coming years are Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and MFF Capital Investments Ltd (ASX: MFF). Those are two businesses with solid dividend track records and diversified asset bases. Their underlying value has increased at a good pace over the last few years.
Low effort
Once I've invested in an ASX share, I don't need to worry about managing the investment – there is a management team of that business running it for me. I don't need to be concerned about dealing with tenants, hearing about repairs that need doing, property taxes and so on.
Tax time is also relatively easy due to the extensive dividend information the ATO collects from the companies.
I'd prefer my investments to give me more time for my life, rather than adding stress instead.
I'm not sure what my (or your) finances will look like over the next 10 or 20 years, but according to a compound interest calculator, if I had $0 and invested $1,000 per month then it would reach $1 million in less than 24 years if it returned an average of 10% per year. That sounds good to me and I'm hoping to reach $1 million sooner than that.
