I reckon everyone who's investing in ASX shares would love to be a millionaire, if they're not already.
Of course, a $1 million portfolio doesn't just appear out of nowhere.
Anyone with a bit of flexibility with their budget, which may be a bit rarer during this period, may be able to regularly put some money aside into investing.
Australians need to be patient when it comes to wealth-building. Rome wasn't built in a day, after all.
But, having said that, people that can invest should be able to reach $1 million thanks to the power of compounding. The power of compounding helps a number grow into a much larger figure over time – our portfolio can grow itself.
It's like planting a small sapling and it growing into a fruit tree that can start producing its own fruit.
How long would it take for our financial tree to turn into $1 million? That's what I'm about to show.
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The power of compounding to $1 million
Each Australian household will need to figure out how much they are able to invest into ASX shares. So, I'll show how it could look for a variety of regular investment sizes.
For starters, the local share market has returned an average of around 10% per year over the ultra-long-term. We can invest in the ASX share market quite easily through the Vanguard Australian Shares Index ETF (ASX: VAS).
We'd need a crystal ball to know what the future returns will be, but I think using a 10% return is a simple number to use in the following calculations.
If a household can invest $500 per month and it returns 10% per year, that would grow to $1 million in less than 31 years.
Investing $1,000 per month would turn into $1 million in less than 24 years.
Being able to invest $2,000 per month would allow the portfolio value to become $1 million in less than 18 years.
For me, one of the most appealing things about these scenarios is how little an investor needs to invest to become a millionaire.
For example, in the scenario where someone is investing $500 per month for 31 years, that household has only invested $186,000 of their own money and the rest has been created from investment compounding.
Someone who has invested $1,000 per month for 24 years would have contributed $288,000.
How can I reach millionaire status sooner?
There are two main ways investors can accelerate their wealth-building. First, we can simply invest more per month. But, that's not available to all Australians because of budgetary constraints.
The other way to grow our wealth faster is to choose investments that could produce stronger returns than the VAS ETF.
I think there are plenty of opportunities to do that, even just in the exchange-traded fund (ETF) space such as Vanguard Msci Index International Shares ETF (ASX: VGS), VanEck MSCI International Quality ETF (ASX: QUAL) and VanEck Morningstar Wide Moat ETF (ASX: MOAT).
I'm also excited about the potential of ASX growth shares to outperform the ASX share market.
