Investing in the right ASX shares has minted more than a few Aussie millionaires.
By the 'right' stocks, I mean companies with strong, proven management teams and sizeable barriers to entry, or moats if you prefer.
It's also good to see ASX shares growing their revenues while keeping costs in check. And ideally operating in a growing market, with the potential to increase their market share.
Atop these characteristics, many S&P/ASX 200 Index (ASX: XJO) stocks pay out a portion of their profits to shareholders in the form of dividends. To make the most of those come tax time, I ideally look for companies paying fully franked dividends.
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Buying the dip on ASX shares
The biggest long-term success driver for most ASX shares comes down to the quality of the business, its people and its assets, as outlined above.
But that doesn't mean you can't boost your potential gains by buying in on the dip.
Now, trying to buy at the very bottom is all but impossible. And always bear in mind that a stock, or entire index, can continue to fall even after an already sizeable retrace.
But that doesn't mean investors can't take advantage of the recent market pullback.
While the ASX 200 is up 3.6% since 30 October, the benchmark index remains down 7.2% since 3 February.
With many ASX shares having fallen due to cyclical and macroeconomic factors outside of their control, and with most of those headwinds likely to reverse course in due time, that 7.2% retrace smells a lot like a money-making opportunity to me.
Investors looking to mitigate some of the risk in today's volatile markets could also consider dollar cost averaging in to help smooth out their returns. This is where you invest a set amount of money into stocks every month (or whatever period you choose), regardless of whether the share price is higher or lower.
Time in the markets
You may have heard the old investor adage that it's time in the markets, not timing the markets, that leads to long-term wealth creation.
Indeed, while not ignoring the potential value of buying ASX shares following a retrace, buying and holding quality companies long-term is just how Warren Buffett amassed his own billions. And he started with virtually nothing, mind you.
"Our favourite holding period is forever," Buffett famously quipped.
Re-investing those dividends into ASX shares can also provide a shortcut on our road to riches by making use of the magic of compounding.
To see what I mean, take a look at the S&P/ASX 200 Gross Total Return Index (ASX: XJT), which includes all cash dividends reinvested on the ex-dividend date.
Over the past three years, the ASX 200 has gained 9%.
But with reinvested dividends, the Total Return Index has gained 24%.
And remember, the benchmark index is still down 7% since February.
