ASX shares are a really great way to build your wealth over the long term. Can investing help you reach $1 million over time?
You don’t need to find the next Afterpay Ltd (ASX: APT)
I think it would be a mistake to think that you need to find ‘the next big thing’ to do well with investing.
Shares have performed very well over the long term, partly due to compound growth. Businesses aim to make profit each year. They can then pay out those dividends (returns in the bank for us) and also keep some of that profit in the business to re-invest for more growth next year.
Just look at how well that dividend and profit re-investment strategy has worked for ASX shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), MFF Capital Investments Ltd (ASX: MFF) and Wesfarmers Ltd (ASX: WES) over the long term.
All you need to do is steadily invest and your portfolio will grow towards that $1 million.
How quickly can ASX shares reach $1 million?
It depends on how much you invest and how well your investments do. Historically, share markets like the ASX have returned an average of around 10% per year over the long term. That compound growth rate turns $1,000 into $2,000 in around 8 years.
Rask has a very handy compound interest calculator that you can use to play around with different numbers – make sure you enter a number into each box.
If you start with $0, invest $500 a month and get an average return of 10% per year then you’d have $1.1 million after 30 years. I believe a lot of households would be able to manage that, particularly when you consider that superannuation is already adding in a really healthy amount. A wage earner making $40,000 would get almost $4,000 a year contributed to their superannuation, which would be a good portion of the required investment to get to $1 million over three decades (assuming it’s all invested in shares, not slow growth assets like cash).
Some people might be able to invest more than $500 a month. Increase that number to $1,250 a month and you end up with $2.8 million after 30 years.
Summary thoughts about ASX shares
It’s not a race to reach $1 million. The more riskily you invest, the longer it could take to get to your financial goals. ‘Get rich slowly’ might be a good way to describe it.
I think there are a number of good, easy-going investments that can help people achieve good returns over the long term such as WHSP, MFF, iShares S&P 500 ETF (ASX: IVV), BetaShares Global Quality Leaders ETF (ASX: QLTY) and VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT).
Before you consider any investments, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
