I think investing in ASX shares can be a really good way of building wealth over the long term.
There are plenty of different asset classes that investors can choose from. But I believe ASX shares are the leading choice for a few different reasons.
While there will be volatility sometimes, that doesn't put me off ASX shares. I love them for the following reasons.
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Returns
The ultimate goal of investing is to produce investment returns. I think ASX shares are a good way to deliver useful compounding returns.
According to Vanguard, Australian shares have delivered an average return per annum of almost 10% between January 1970 and April 2022.
While past performance is not a reliable indicator of future performance, I think ASX shares can provide decent returns going forward as they continue to make profit and hopefully keep growing that profit over time.
A lot of investors like to value businesses based on the profit of cash flow generated. If the earnings grow, then the share price can theoretically grow.
However, shares can be quite volatile in any given month or year. But volatility is one of the main prices of admission to the ASX share market.
One of the sayings by the great Warren Buffett is that the share market is a "device for transferring wealth from the impatient to the patient". We can take advantage of this.
Dividends
Dividends form part of the overall return of ASX shares. I think dividends are underrated.
Businesses can decide to pay out some of the profit made each year, allowing investors to receive real cash returns without having to sell their shares.
Investors can choose to spend those dividends or reinvest them into more shares, accelerating wealth growth.
Some businesses pay dividend yields that are much better than what banks are (currently) offering in savings accounts. Examples of ASX dividend shares include Brickworks Limited (ASX: BKW), Baby Bunting Group Ltd (ASX: BBN), Collins Foods Ltd (ASX: CKF) and Wesfarmers Ltd (ASX: WES).
Cheap to invest
Brokerage is cheap these days, allowing investors to get involved for very little upfront cost.
I'm not going to point investors to a particular share broker, but there are plenty of operators that let people invest under $1,000 for around $10 or less per trade.
Other assets can come with much higher transaction costs. For example, buying a property can come with many thousands of dollars of stamp duty, depending on the price of the property and the state that property is in.
Easy administration and takes little of my own time
I think it's really easy to do the administration of shares.
Business management or funds management administration does most of the work of looking after a business or investment. The CEO of Wesfarmers isn't going to ring me asking what to do or approve something. Once I've bought those shares, it takes little of my own time to keep on top of them.
There's no dealing with tenants or property managers.
If people haven't sold shares during the year then reporting dividends and distributions to the ATO is pretty easy at tax time. Dividend statements are given for each payment, and MyGov/pre-fill reports usually automatically have the investment income already reported for taxpayers. Tax time can be pretty simple with ASX shares.
Foolish takeaway
I love investing in ASX shares, it makes it easy to build wealth without using a lot of time managing investments. Getting paid dividends is awesome as well. I'm always on the lookout for ASX shares that could make good additions to my portfolio.
