I'm sure everyone would like to retire with a very pleasing ASX stock portfolio value. With a certain amount of consistency and dedication, investors can reach their retirement goals.
It can be hard to save at various points of life such as when someone first moves out, when they buy a house and when they have children. It'd be understandable if someone hasn't built up much of a portfolio by the time they're 40. Someone may even be starting with $0.
I believe ASX stocks are a great way to build wealth because of the ability to benefit from compounding, as well as how hands-off it is.
With how easy it is to invest and own in ASX stocks, that leaves more time for things we want to do like time with family, friends, sport, fitness, other hobbies and so on.
Let's run through how much money a 40-year-old could build with ASX stocks in 25 or 30 years.
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Compounding to retirement greatness
Albert Einstein once described compound interest as the eighth wonder of the world.
He certainly seemed to understand the financial power of compounding.
We need to keep in mind that investing in ASX stocks is about growing our net worth over time. Shares have typically delivered an average return per annum of around 10% over the ultra-long-term. That's just an average though, sometimes the actual performance is a lot stronger and sometimes it's a lot weaker. The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one such option to track the global share market.
When an investment goes up at a rate of around 10% per year, it will double in value in less than eight years, which can quickly help people's retirement financial numbers become much larger.
Every household has different financial capabilities, so being able to find $1,000 per month to invest may be very difficult for some people and easy for others.
Investing $1,000 per month could compound into a very nice number for a 40-year-old.
They may decide to retire at 65, 70 or another age. So, I'll run through the first two scenarios.
Retire at 65 with ASX stocks
If a 40-year-old wanted to retire at 65, they would have 25 years to build their wealth, which is plenty of time to build an impressive nest egg figure.
If the portfolio grew at an average of 10% per year and someone invested $1,000 per month, it'd become worth $1.18 million by retirement
Of course, that means that if someone saved for an extra five years, they would end with a noticeably larger figure.
Retire at 70
If a 40-year-old wanted to retire at 70, they would have 30 years to build their wealth, which is an incredibly long time to allow compounding to work its magic.
If the portfolio still grew at 10% per year for 30 years and someone invested $1,000 per month throughout that whole time, it'd become worth $1.97 million by retirement .
Reaching $2 million by just investing $1,000 per month sounds like a great deal to me. People just need to decide which (ASX) stocks to invest in.
