For some investors, the goal of buying ASX shares goes beyond funding their own retirement.
The bigger picture is creating a financial legacy that can be passed down to children and grandchildren. This is what's known as generational wealth.
And the good news is that the ASX provides a strong foundation to build it.
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Think in decades
Generational wealth requires patience. Share prices move up and down in the short term, but wealth is built by holding quality businesses for years and letting compounding returns work their magic.
As Warren Buffett famously suggested, the best holding period can often be "forever." When you apply that mindset, you stop worrying about market noise and start focusing on the powerful effect of long-term ownership.
Own quality
The backbone of any generational portfolio is high-quality ASX shares. These are businesses with strong competitive advantages, robust balance sheets, and growth opportunities that can play out over decades.
On the ASX, examples include Cochlear Ltd (ASX: COH), a global leader in hearing implants, and Goodman Group (ASX: GMG), which has carved out a dominant role in logistics real estate, and ResMed Inc. (ASX: RMD), which is leading the way in sleep disorder treatments. These companies are built to endure and adapt, making them strong candidates for long-term wealth creation.
Diversify through ETFs
To avoid relying too heavily on a single company, sector, or country, ETFs can be invaluable.
The iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS) combined give investors instant exposure to thousands of global stocks. Furthermore, adding something like the Betashares Global Quality Leaders ETF (ASX: QLTY) tilts a portfolio towards the world's most profitable and durable businesses.
The power of compounding
To see just how powerful compounding can be, imagine investing $20,000 into a diversified ASX share portfolio today and achieving an average annual return of 10%. This is roughly in line with long-term share market averages, though not guaranteed.
After 30 years, that single investment could grow to around $350,000 without adding another cent.
And if additional contributions were made regularly, the portfolio would compound to an even great value.
For example, adding $500 a month to this $20,000 starter portfolio would result in a portfolio valued at approximately $1.4 million after 30 years, all else equal.
Foolish takeaway
Generational wealth doesn't happen overnight. It takes a combination of capital, discipline, and patience.
But as you can see above, it certainly can be a worthy endeavour.
