It's never too late to begin buying ASX shares to build a wealthier retirement.
With that said, the earlier you start, the sooner you can tap into the magic of compounding.
So, if you're 30 years and don't have any real savings to fall back on yet, don't panic. You have plenty of time to build that retirement nest egg well beyond your superannuation balance.
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How much do I need to invest in ASX shares for $1 million at retirement?
Let's assume you'd like to retire a little early. Say at 65 years of age rather than the more customary 67 years.
In that case you've got 35 years to gradually build up your ASX share portfolio to the magic $1 million figure.
But to do so, you will need to start saving some money each month and investing in quality ASX stocks or exchange traded funds (ETFs).
There's no way around it.
But you may be surprised by the modest amount it will take to reach your $1 million retirement mark, provided you start soon.
Let's take the S&P/ASX 200 Gross Total Return Index (ASX: XJT) – which includes all cash dividends reinvested on the ex-dividend date – as our benchmark for the types of returns you might expect.
Over the past five years, the ASX 200 total return index has gained 45%. That equates to 7.7% annual gains, compounded.
Now if you invest just $500 in ASX shares every month, or only $6,000 a year, at a 7.7% annual return you'll have:
- $91,305 in 10 years
- $288,090 in 20 years
- $708,326 in 30 years
- $1,072,204 in 35 years
So, if you just turned 30 and start investing $500 each month now, you should achieve your $1 million mark sometime before your 65th birthday party.
And if you do decide to work the extra two years to the standard 67 year old retirement age, and you keep buying $500 worth of ASX shares every month, you could kick back with an extra $1,264,195.
One ASX ETF to consider today
Rather than trying to build a well-diversified ASX share portfolio from day one, you may want to look into the Vanguard Australian Shares Index ETF (ASX: VAS).
This low-cost, diversified, exchange traded fund aims to track the ASX 300 Index, which holds the top 300 ASX shares by market cap.
And this ASX ETF has just edged out the 7.7% annualised gains figure we used above, returning 7.8% five-year annualised gains.
The fund's top four holdings are BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), and National Australia Bank Ltd (ASX: NAB) shares.
