ASX shares can be the key for Aussies to unlock pleasing wealth, and we don't need to invest a lot to (possibly) build a portfolio worth hundreds of thousands of dollars, or even $1 million.
Property has done well over the last decade, but it can be tough to start in real estate because of how large the deposit needs to be, as well as the expensive transaction costs.
With ASX shares, we can decide to invest a small amount (perhaps less than $1,000) for a very small amount of brokerage.
The first part of investing is having the cash to put towards businesses. That means spending less than we earn, one way or another.
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Start investing in ASX shares
Aussies need to decide which online broker they want to go with. Ideally, it's with a broker that we can trust and one that has low brokerage fees.
Most brokers have a minimum investment of $500, so if we save $270 per month, I'd suggest that investors should think about investing, at most, once every two months. With interest rates now much higher these days, we can earn a decent return on cash sitting in a savings account, so it's okay to wait a month or two to invest.
Where I'd choose to invest
If I were looking to reach $1 million sooner rather than later, I would want to choose investments that I think can deliver good compounding returns over time.
Investing doesn't need to be complicated, we can choose exchange-traded funds (ETFs) that do the investing for us and that can enable our portfolio to deliver good results.
I'd back ASX-ETFs that are focused on quality businesses that have a track record of delivering good returns, though nothing is certain.
For me, there are a few ETF investments that I'd want in my portfolio, including Vaneck Morningstar Wide Moat ETF (ASX: MOAT) and VanEck MSCI International Quality ETF (ASX: QUAL).
The MOAT ETF is about investing in businesses that have competitive advantages that are more likely than not going to endure at least 10 years if not 20 years. It only invests in those high-quality businesses when they're at what's deemed to be a good price. Over the past five years, the MOAT ETF has delivered an average return per annum of 15.6%, though the past is not a reliable indicator of future returns.
I'd also consider ASX growth shares that may be able to deliver significant growth in their operations over the next 10 or 15 years. At the moment, I'd name ASX shares like Lovisa Holdings Ltd (ASX: LOV), Johns Lyng Group Ltd (ASX: JLG) and Temple & Webster Group Ltd (ASX: TPW) as ideas, but there are plenty of other possibilities which I'll regularly write about.
However, I wouldn't choose the highest-risk, small businesses – we don't need to go for highly speculative investments to do well.
Compounding returns
By looking at investments that may be able to deliver good capital growth, the long-term could help deliver pleasing numbers. I wouldn't expect to be able to deliver average returns of 15% per annum for the next decade (or three), but perhaps an average of 11% per annum may be possible.
If we invested $270 per month and the portfolio makes returns of 11% per annum, it would take around 34 years to reach a $1 million portfolio. To put that in perspective, that would come from $110,160 of our own cash put in and the rest would (theoretically) come from investment returns. You can play around with this compound interest calculator from Moneysmart.
My calculation assumes investing $270 per month over the whole time period, but if after five or ten years we could start investing $500 per month or $750 per month then $1 million would come much quicker. Finding strong ASX share investments can also help build a portfolio more quickly.
