When you first start investing, the prospect of eventually building a million-dollar portfolio might seem impossible. However, history shows that it is possible to do so by investing in ASX shares.
How many shares? Many experts suggest a portfolio of 20 to 30 shares spread out across various industries is optimal for diversification. That's because having this number decreases company or industry-specific risk by ensuring that no single company or industry has too much influence over the value of your holdings.
However, investors could get away by buying only a handful of ASX shares if they take advantage of the diversification offered by exchange-traded funds (ETFs). For example, the Vanguard MSCI Index International Shares ETF (ASX: VGS) gives investors exposure to 1,467 of the world's largest listed companies from major developed countries. That's about as diverse as it gets.
If you owned an ETF like this, you could potentially snap up just a few high quality ASX shares to make a really strong portfolio.
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But how do you make a million?
If you're just starting out and have time on your side, then investing with a long-term view could be the key to making a million.
If you're able to invest $5,000 into ASX shares each year and earn a 9.6% per annum return, then you would turn those investments into $1 million after just over 30 years. If you can afford to add more as you get older and your wage (hopefully) increases, you'll get there even earlier.
Why 9.6%? Well, that's the return that Australian shares have provided investors with over the last 30 years according to Fidelity. And while there's no guarantee that the market will do the same over the next 30 years, this level of return is largely in line with historical averages.
If you're starting when older, you'll just need to begin with a greater amount of capital and make slightly larger annual contributions to reach your goal.
Starting with $150,000 and making $10,000 annual investments will take a little over 15 years to reach $1 million if you're earning a 9.6% per annum return.
All in all, being a share market millionaire is not impossible, particularly if you have a plan and stick to it.
