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If you want to retire rich, then ASX shares could be the answer. That’s because, with a long-term perspective and the power of compounding, ASX shares can serve as formidable wealth-building tools, paving the way to a financially secure future.
Legendary investor Warren Buffett once quipped:
Someone’s sitting in the shade today because someone planted a tree a long time ago.
This quote perfectly captures the spirit of long-term investing. By planting the seeds of investment and patiently allowing them to grow, investors can enjoy the bountiful shade of financial success in their golden years.
This is all thanks to the wonderful power of compounding. This is when you earn returns on top of returns, which amplifies the growth of an investment portfolio over time.
Compounding with ASX shares
To demonstrate the power of compounding, let’s imagine investing $10,000 per annum into ASX shares and assume an average total return of 9.6% per annum. And while future returns are certainly not guaranteed, this is the average of the last 30 years, so a fair target to shoot for.
An investor that consistently invests $10,000 into the share market each year for three decades and earns the market return, would see their portfolio grow to just under $1.7 million.
This means that your total investment of $300,000 ($10,000 x 30) has multiplied more than fivefold, all thanks to the power of compounding.
Which shares should you buy?
The ASX offers a wide range of shares across various sectors including financials, healthcare, technology, retail, and materials.
By focusing on a diverse group of well-established companies with sustainable competitive advantages and robust growth prospects, investors can position themselves for long-term success. This is how Buffett has done it over decades and his track record speaks for itself.
All in all, the key is to focus on quality, invest consistently, and let compounding do its thing. Doing this, you have a good probability of being in a position to retire rich.