Investing is all about making money, so why not aim big and target becoming a millionaire (or more)? Shares are a great tool to facilitate wealth building for a number of different reasons.
The share market has delivered pleasing long-term returns. If an asset goes up in value at an average of 8% per year, it'd double in value in nine years. Over the long-term, the ASX share market and the global share market have both delivered stronger returns than 8%.
We don't need to utilise negative cash flow (negative gearing) with shares or take much time buying or managing shares. Pleasingly, shares can be a very effective investment tool with minimal effort, leaving more time for life activities or additional earnings.
Becoming a millionaire will take a bit of time – it doesn't happen overnight. There's a type of share investment I'd lean on to help on the investment journey – exchange-traded funds (ETFs).
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Why ETFs are so effective
Buying an ETF means investing in a fund via an exchange, such as the ASX.
The most effective ETFs can provide investors with both diversification and good returns. Diversification can help reduce the risk of a particular business or industry hurting returns if it goes through difficulty.
With an ETF, we don't need to decide on the specific business weightings or industry weightings ourselves, the ETF does that for us.
All we need to do is own them for the long-term and benefit from the compounding of returns. Plus, the ETF portfolio will likely change over time, which helps ensure good returns going forward.
As a bonus, ETFs usually come with relatively low fees thanks to their simple structure.
Which ones I'd buy to become a millionaire
I think the Australian stock market is a great place to find individual ASX share company opportunities, but it only represents 2% of the global share market, so it's a good idea to gain exposure to a significant portion of the rest of the opportunities.
I'd want to ensure that I'm largely invested in great businesses rather than just mediocre ones, so I'd focus on investments ETFs that have a high allocation to high-quality businesses.
Vanguard MSCI Index International Shares ETF (ASX: VGS) is invested in many of the world's leading Western global shares, and it's a great choice for widespread diversification.
But, there are a few diversified ETFs that are focused on the highest-quality names, which I believe could beat the long-term return of the VGS ETF. I'm thinking of names like VanEck MSCI International Quality ETF (ASX: QUAL), Betashares Global Quality Leaders ETF (ASX: QLTY), VanEck Morningstar Wide Moat ETF (ASX: MOAT) and Global X S&P World EX Australia GARP ETF (ASX: GARP).
I think each of the above five funds could return an average of more than 10% per year over the long-term, particularly the quality-focused ETFs. If someone invested $1,000 per month and it returned 12% per year, someone could become a millionaire in less than 22 years. Investing more per month could significantly accelerate that wealth-building.
