As we begin the new financial year, many Aussies will be looking to restructure and reposition their portfolios.
Other investors may be looking to allocate savings to shares or ASX ETFs for the first time.
If you fall into either basket, there are several ways to build lifetime wealth.
Here at The Motley Fool, we advocate for a long-term, diversified portfolio.
ASX ETFs offer a simple and effective way to achieve this in just one or two trades.
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The magic of compounding
One of the core reasons we advocate for long-term investing is the impact of compounding returns.
A simple way to think about compounding is that your money earns returns, and then those returns earn returns too.
For example, if you invest $10,000 in an ASX ETF and it earns an average 10% per year with all dividends reinvested:
- After 10 years: $25,900
- After 20 years: $67,300
- After 30 years: $174,500
- After 40 years: $452,600
You only invested $10,000, but by staying invested and reinvesting your returns, compounding does the heavy lifting over time.
While this is just a hypothetical example, there are ASX ETFs that have brought annualised returns around this mark.
This is why long-term investing in ASX ETFs can build significant wealth.
Here are three examples that are built for the long-term.
BetaShares Australia 200 ETF (ASX: A200)
As the name suggests, this fund from Betashares provides exposure to the S&P/ASX 200 Index (ASX: XJO).
The ASX 200 is an index that tracks the 200 largest companies listed on the Australian market.
It represents around 80% of the total value of the Australian share market, making it a good snapshot of how the Australian economy and share market are performing.
Over the last five years, it has brought an annualised return of almost 8% according to Betashares.
This kind of fund can be a great starting point for an Aussie investor trying to capture the broader Australian market.
iShares S&P 500 ETF (ASX: IVV)
Turning our attention to the US market, this iShares fund applies the same concept to the largest US stocks.
It tracks the S&P 500 Index (SP: .INX), which is 500 of the largest publicly traded companies in the United States.
Over the last five years, it has brought an annualised return of over 13%.
Vanguard MSCI Index International Shares ETF (ASX: VGS)
Another great set and forget option is this fund from Vanguard.
One of the most popular ASX ETFs, it invests in over 1,000 companies from around 23 countries, including the U.S., Japan, the U.K., Canada, France, and Switzerland.
It is a great way to diversify your portfolio in just one trade.
Over the last five years, it has returned over 10% per annum.
