ASX shares have proven to be a very good wealth-building tool over prior decades. Is the current period another opportunity to accelerate wealth?
Higher interest rates and strong inflation are hitting businesses in many different ways.
While valuations of some ASX growth shares are still down significantly, the S&P/ASX 200 Index (ASX: XJO) as a whole isn't down much at all.
In fact, the ASX 200 is close to its all-time high. It had fallen quite a way by June 2022 and at the end of September 2022. But it has significantly recovered since then.
So, with the ASX 200 as a whole doing well, thanks to strong commodity prices and higher projected bank profits, I think the short-term opportunity there has already passed.
However, remember that the ASX 200 has returned an average of around 10% per annum over the ultra-long term. I believe that investors can still do well over the longer term with an exchanged-traded fund (ETF) focused on larger ASX shares, such as the Vanguard Australian Shares Index ETF (ASX: VAS) (though this ETF tracks the S&P/ASX 300 Index (ASX: XKO) ).
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Can ASX shares still make mega returns?
Of course, the index is made up of different constituent businesses – the great performers and the ones going through tough times as well.
Over the last decade, names like CSL Limited (ASX: CSL), Pro Medicus Ltd (ASX: PME), and Altium Limited (ASX: ALU) have flourished.
I think there are probably going to be a few names on the ASX now that are on their journey to achieve very good returns. Time will tell which names end up being those big winners.
The Motley Fool can hopefully help identify those upcoming winners, but I think there are a couple of factors that will help generate stronger returns.
First, I'd look for a business that is looking to expand overseas because that increases the total addressable market. This gives the ASX share a bigger growth runway, meaning possible stronger returns. But it's also important to evaluate how effective the business could be at winning market share.
Second, I'd only want to go for businesses that seem like they have good gross profit margins with the potential to become very profitable in the future. I regularly write articles outlining some of the ASX shares that I think could perform very well.
I think smaller ASX shares have more room for growth because they are earlier on in their growth journey, with more compounding potential.
