Building a $250,000 ASX share portfolio might seem like a big task, especially if you're starting at zero.
But with a combination of regular investing, patience and the power of compounding, I think it is a goal that many Australians could realistically achieve.
Here's one way to approach it.
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Start with $500 a month
The first step is to establish a regular investment habit.
For example, someone who can put aside $500 a month, or approximately $115 a week, in ASX shares could make significant progress over time.
Historically, the Australian share market has delivered total returns of around 10% per annum, including dividends.
While there's no guarantee of achieving this return in the future, it provides a reasonable assumption for illustrating how a long-term portfolio might grow.
At an average annual return of 10%, investing $500 a month could grow into approximately $100,000 after 10 years.
That's a big achievement, but the party is only getting started.
Let compounding do more of the work
If the investor continues contributing $500 a month and reinvesting their dividends, the portfolio could reach approximately $200,000 after 15 years.
And then after 17 years, it could be worth over $250,000.
I think this shows why getting started early and allowing dividends and capital gains to compound can be so rewarding.
Choose investments that can grow with you
Of course, reaching this target will also depend on where the money is invested.
For someone starting from scratch, a low-cost exchange traded fund (ETF) could be a sensible foundation.
For example, the Betashares Australia 200 ETF (ASX: A200) provides exposure to 200 of Australia's largest listed companies through a single investment with a management fee of 0.04%.
Alternatively, the iShares S&P 500 ETF (ASX: IVV) offers easy exposure to 500 of the largest stocks on Wall Street also with a management fee of just 0.04%.
As the portfolio grows, there could also be opportunities to add individual ASX shares.
Companies such as Wesfarmers Ltd (ASX: WES), ResMed Inc (ASX: RMD) and CSL Ltd (ASX: CSL) could be worth researching for their long-term earnings growth potential.
The important thing is to build a diversified portfolio rather than relying on one or two companies to deliver the returns.
The road to $250,000
One of the biggest advantages of this approach is its simplicity.
Rather than trying to time the market, investors can contribute regularly, reinvest dividends and gradually increase their investments as their financial circumstances improve.
There will inevitably be difficult periods when share prices fall, and actual returns won't arrive at a steady 10% every year.
However, for someone with a long investment horizon, I think building a $250,000 ASX share portfolio over approximately 17 years is an achievable goal worth working towards.
