How to build a million-dollar portfolio with ASX shares

Building a million-dollar portfolio with ASX shares may sound like a lofty goal, but with the right approach, it certainly is achievable.

The key is making long-term investments, leveraging the power of compounding, and focusing on high-quality investments. Here's how you can set yourself on the path to seven-figure wealth with ASX shares.

The power of compounding

Compounding is arguably the cornerstone of wealth creation.

When you reinvest your returns, you earn returns not just on your initial investment but also on the returns you've already accumulated.

Over decades, this snowball effect can turn modest investments into substantial wealth. For example, with an average annual return of 10% — in line with historical market averages — a single $10,000 investment in ASX shares could grow to over $67,000 in 20 years without additional contributions.

Buying high-quality ASX shares

It is fair to say that not all shares are created equal.

To achieve sustainable long-term growth for a portfolio, it is important to invest in companies with strong fundamentals and sustainable competitive advantages.

These are businesses that dominate their industries, boast robust cash flows, and have a proven ability to adapt to changing markets. ASX-listed companies like CSL Ltd (ASX: CSL) and Goodman Group (ASX: GMG) are prime examples of such high-quality stocks.

Consistent investing

Above I spoke about a single long-term $10,000 investment into ASX shares. But the real way to grow your wealth is to make consistent investments over a long period.

By contributing $1,000 per month to your portfolio, you're not only increasing your capital base but also taking advantage of dollar-cost averaging. This strategy smooths out the impact of market volatility and ensures you're consistently building wealth, regardless of market conditions.

Assuming a starting investment of $10,000, regular monthly contributions of $1,000, and an annual return of 10%, your portfolio could reach $1 million in just under 23 years. While this timeline requires patience, the rewards certainly are well worth the effort.

Foolish takeover

Building a million-dollar portfolio with ASX shares is within reach for disciplined, long-term investors.

The key is to focus on quality companies, reinvest your returns, and making consistent contributions. By doing this, you can harness the power of compounding to achieve your financial goals.

But it is important to remember that the journey requires time and commitment, but it will be worth it when you reach your destination.

The post How to build a million-dollar portfolio with ASX shares appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Goodman Group. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2024