How I'd aim for a million buying 10 ASX shares

Here's how I would turn a dream into reality with a handful of investments and some discipline.

A young well-dressed couple at a luxury resort celebrate successful life choices.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock market is a millionaire (and billionaire) factory. Many of the wealthiest people on the planet have made their riches by owning shares in listed companies. While most of us may never own founding stakes like those held by Elon Musk or Jeff Bezos, we can still buy into ASX shares to help grow our wealth enormously.

Alas, millionaire status is rarely stumbled upon. Owning portions of great companies can do the heavy lifting during the journey, but it sure helps to have a game plan.

So, here's how I would go about building a million-dollar portfolio. A smooth million could be just the beginning if the foundations are right.

Build a habit

Wealth creation starts with forming simple, repeatable habits. There are no get-rich-quick schemes in life. Amassing large sums of money is a consistent practice involving doing the basics repeatedly with discipline.

Warren Buffett, famed billionaire investor and CEO of Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B), said, "Investing is simple, but not easy." When asked why everyone doesn't apply his simple investing approach that has created fortunes, Buffett quips, "Because nobody wants to get rich slowly."

The problem is the returns from investing are unintuitive because compounding is unintuitive.

If I told you it took 20 folds of a piece of paper for it to be 130 metres thick… how many folds would you guess are needed to be as thick as the distance between the Earth and the Moon (384,400 kilometres)?

Maybe 10,000… or 5,000… surely at least 1,000 folds, right? The answer is 42 folds. A little more than twice the number of folds to reach 130 metres thick.

That's why building a habit of consistently investing in ASX shares would be my first step toward a million dollars. Many financial apps make this easy through micro-investing or scheduled direct debits without lifting a finger.

Disciplined diversification

My next step would be establishing how to invest to reach a million dollars.

Diversification is an incredibly handy tool in an investor's arsenal to avoid pouring years' worth of work down the drain from one or two bad investments — however, the benefits of adding more ASX shares to a portfolio become negligible at a point.

For some, an exchange-traded fund (ETF) tracking the S&P/ASX 200 Index (ASX: XJO) is their style. For me, 200 companies are too many. I'm more comfortable with picking out the best ASX shares and ditching the subpar ones using some fundamental analysis. In doing so, I aim to outperform the benchmark's historical ~9% return.

Note: For illustrative purposes only

I'm not Warren Buffett, so an average return of 22% may not be on the table. But, if I can manage 15% per annum on average, the time it takes to build a million-dollar portfolio could be reduced by eight years — assuming a $10,000 starting balance and $600 invested each month.

To do this, I would invest in five to seven exceptional individual companies and use ETFs to diversify to 10 ASX shares. That way, my portfolio is still diversified while maintaining a larger allocation toward companies I believe can perform better than the broader market.

Picking the right ASX shares for the job

Millionaire status will be out of reach if I pick value traps or serial underperformers. The million-dollar question is: how do I invest in the right ASX shares?

In my opinion, there are three essential ingredients for selecting great companies:

  • Moat: brand, technology, patents, first-mover advantage, etc.
  • Management: long tenure (experienced), skin in the game, good track record for capital allocation
  • Longevity: large unpenetrated market, operated for decades, conservative balance sheet

Keep in mind time is our golden goose here. I need to find shares in ASX companies capable of not only existing in 20-odd years' time but thriving. A couple of ASX shares I believe fit this criteria are Pro Medicus Limited (ASX: PME) and Resmed CDI (ASX: RMD).

Additionally, I would aim to buy such ASX shares at attractive prices. However, I'm more lenient on valuation the higher the quality of the business.

Motley Fool contributor Mitchell Lawler has positions in Pro Medicus and ResMed. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Pro Medicus and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Cheap Shares

3 oversold ASX shares begging to rebound

Analysts think these shares are too cheap to ignore at current levels.

Read more »

Person handing out $100 notes, symbolising ex-dividend date.
Dividend Investing

5 excellent ASX dividend shares to buy in May

Analysts think these shares are top picks for income investors next month.

Read more »

A person with a round-mouthed expression clutches a device screen and looks shocked and surprised.
Growth Shares

3 unstoppable ASX growth shares to buy and hold for the long term

Analysts have good things to say about these top stocks.

Read more »

ETF written on cubes sitting on piles of coins.
Dividend Investing

How can an ASX investment in the Vanguard Australian Shares High Yield ETF (VHY) boost my passive income?

ETFs can be fantastic hands-off sources of passive income.

Read more »

A young male builder with his arms crossed leans against a brick wall and smiles.
Dividend Investing

Building up income: 2 ASX dividend shares I believe are a buy

These stocks are delivering pleasing passive income growth.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

Is this a great opportunity to lock in big dividend yields for a second income?

Has the market selloff created an opportunity for income investors? Let's find out.

Read more »

An athlete runs fast with a trail of yellow smoke billowing out behind him.
Dividend Investing

Don't miss out on these buy-rated ASX 200 dividend shares

Analysts are bullish on these names. Let's find out why.

Read more »

A woman wearing dark clothing and sporting a few tattoos and piercings holds a phone and a takeaway coffee cup as she strolls under the Sydney Harbour Bridge which looms in the background.
Growth Shares

Top Australian stocks for a $7,000 investment today

These stocks are highly rated by analysts. Let's find out why.

Read more »