One of the best things that Australians can do for their finances is to spend less than they earn, also known as saving. That's key to improving our net worth. But, for those aspiring to build $1 million of wealth, simply saving cash in a bank account isn't likely to be as effective as investing in ASX shares.
I do think everyone should have some cash in the bank. There's power in having an emergency fund. Saving for a house deposit is also a great way to use a savings account.
In terms of just building wealth, cash is not very powerful for compounding.
At the moment, savers may be able to get a savings product that offers a 5% interest rate. That's quite high compared to most of the last decade.
Let's assume someone can save $1,500 per month. If that money earned a 5% interest rate it would take around 27 years to reach $1 million.
Investing in ASX shares makes a lot more sense to me.
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The power of investing in ASX shares over just saving
One of the most popular ways to invest in ASX shares is with the Vanguard Australian Shares Index ETF (ASX: VAS), an exchange-traded fund (ETF) that tracks the S&P/ASX 300 Index (ASX: XKO) – that's 300 of the largest businesses on the ASX.
Over the decade to 31 March 2026, the VAS ETF has returned an average of 9.35% per year. That's a solid return and close to double what return savings accounts are offering right now.
It's important to remember that interest income on offer doesn't include the negative of tax while the VAS ETF returns don't include tax or the positive of franking credits as part of the distribution income that is sent to investors. Plus, distributions from an ETF can benefit from capital gains tax discounts (which interest income doesn't).
So, it's hard to exactly compare apples to apples. But, I'll use the return quoted by Vanguard.
If someone invested $1,500 per month and it returned 9.35% per year, that would turn into $1 million in less than 20 years!
In other words, that's shaving around seven years off the time that it takes to get to a $1 million net worth.
But the VAS ETF is not the only way to invest in ASX shares, of course.
Plenty of content on this site is about finding ASX growth shares with significant potential to deliver returns.
There are also international-focused ASX ETFs that could provide both pleasing diversification and good returns such as Vanguard MSCI Index International Shares ETF (ASX: VGS) and VanEck MSCI International Quality ETF (ASX: QUAL) which have both returned an average of more than 13% in the past decade. That level of return – which is not guaranteed – would turn $1,500 per month into $1 million in less than 17 years!
