The legendary investor Warren Buffett is famous for his annual letters to the shareholders of his company Berkshire Hathaway. These letters are typically expansive, and packed with investing tips and wisdom, but written in an accessible and often humourous and witty manner.

The latest Berkshire letter is hot off the press, having only been released a few weeks ago.

One of the most pertinent things Buffett wrote this year was to do with finding winners for one's share portfolio.

Some Warren Buffett wisdom to get to $1 million…

Here's what the great man himself had to say:

In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck…

Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favors long-term investors such as Berkshire…

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.

So "it takes just a few winners to work wonders". That's the philosophy I like to take into my own investing practice. As such, I'm always on the hunt for the ASX's best shares – ones that could drive my own share portfolio to $1 million one day.

Of course, this is easier said than done. And if Buffett himself isn't immune from making mistakes, then we should all prepare for more than a few setbacks along the way.

You'll normally find that the companies that dominate their respective industries and markets have some kind of secret sauce that keeps them at the top of the pole. Buffett likes to call this competitive advantage a company's 'moat' – named for the protection it provides against competitors.

It could be a reputable or famous brand (think Coca-Cola, Apple or even Commonwealth Bank of Australia (ASX: CBA)), a cost advantage (perhaps Woolworths Group Ltd (ASX: WOW), or having an asset or product that customers have no choice but to use (a Transurban Group (ASX: TCL) toll road).

Buy the best companies – at the right price

But finding these quality companies is just the start. To truly find a winner, you need to buy it at the right price. Let's take Woolworths as an example.

You can't deny this company's quality as the leading supermarket operator in Australia.

If an investor bought Woolworths shares back in May of 2014, they would have paid around $31 a share. That would lead them to a rather uninspiring total return of just over 20% by this point of 2023 (albeit boosted by the dividends Woolworths has paid along the way).

But what if that investor instead waited until July 2016 to buy in? That's when Woolworths was in the midst of its Masters debacle, and the shares got down to around $17.50. If our investor had bought at this far more attractive share price, they would instead be sitting on a capital gain of well over 100% today:

WOW indeed.

So Buffett teaches us that getting to $1 million requires just a handful of quality shares, but bought at the right price.

I'm banking on shares that I think fit this mould to get my own wealth to over $1 million. Those include Washington H. Soul Pattinson and Co Ltd (ASX: SOL), the VanEck Morningstar Wide Moat ETF (ASX: MOAT), Adairs Ltd (ASX: ADH) and Wesfarmers Ltd (ASX: WES).

Only time will tell if any of these prove to be the flowers my wealth garden needs (and hopefully not weeds).

The post I'd aim for $1 million, thanks to just a few ASX shares appeared first on The Motley Fool Australia.

Businesses have great potential to be able to pay dividends and re-invest in their businesses, enabling income for investors as well as compounding profit.

Investors have more options for where to put their money these days. Some term deposits and savings accounts can offer investors a yield that starts with a 4%.

But, I don't think those investments that offer a fixed return are the way to build wealth because they don't produce any growth themselves.

That's why I think ASX dividend shares can be the tool that we use to build wealth.

How I'd plan to replace a salary with passive income

Before we get to the investing side of things, I think investors need to figure out how much they're able to save and what level of passive income they're aiming for.

Costs are quite a lot higher for households these days, with more expensive food and energy. It's okay if investors aren't able to save much in the current environment. Keeping a roof over one's head and putting food on the table is the most important thing.

I'd also suggest that each adult needs to ensure they're not trying to save too much and hurting today's enjoyment. What I mean by that is that people get older, circumstances change and so on – sometimes it's better to pay for an experience this year than wait for a distant future.

Having said that, I'd figure out how much we can save and invest. It could be $500 a month, $1,000 a month, $2,000 a month or even more.

Next, I'd want to work out what the dividend passive income goal is. Every household's expenditure is different. The desired expenditure could also be different.

The Association of Superannuation Funds of Australia's Retirement Standard suggests that a couple that owns their own home will need an income of about $67,000, while a single person will need an annual passive income of more than $47,000.

Start saving and investing

I'd then get to work and start investing that $1,000 a month or $2,000 a month, perhaps more, into ASX shares. So, that would turn into $12,000 a year or $24,000 a year.

Of course, making an annual passive dividend income of $67,000 or more will take time to build.

Investing $1,000 a month, and if the portfolio grows at 10% a year, could achieve $1.18 million after 25 years.

Investing $2,000 a month, and if the portfolio grew by 10% per year, could rise to $1.37 million after 20 years.

Both of those totals may seem like a lot, but I think they're very achievable thanks to compounding. In the first example, investing $1,000 a month, it only takes the investor to add $300,000 of their own money – while $880,000 comes from investment returns in that example.

Which ASX shares to buy?

There are some ASX shares that I think can provide a solid amount of growth for investors and help compound a portfolio's value, such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), VanEck Morningstar Wide Moat ETF (ASX: MOAT), Wesfarmers Ltd (ASX: WES), VanEck MSCI International Quality ETF (ASX: QUAL), Lovisa Holdings Ltd (ASX: LOV) and Betashares Nasdaq 100 ETF (ASX: NDQ).

When investors get closer to the age or figures they're aiming for, I'd also want to consider some ASX dividend shares that pay good yields like Soul Pattinson, Wesfarmers, Rural Funds Group (ASX: RFF), Premier Investments Limited (ASX: PMV), Charter Hall Long WALE REIT (ASX: CLW) and Metcash Limited (ASX: MTS).

A $1.2 million portfolio with a 5% dividend yield would produce an annual passive income of $60,000. That sounds great to me.

The post How I'd aim to replace an entire salary with passive income from ASX dividend shares appeared first on The Motley Fool Australia.

We should expect that the share market is going to see some volatility each year. There is a changing mix of buyers and sellers each day, combined with changing headlines in the news.

But, I've focused on ASX dividend shares that aim to provide investors with growing dividends. That way, I can concentrate on my growing dividend cash flow and not worry what the share price is going to do next.

Washington H. Soul Pattinson and Co. Ltd (ASX:SOL)

I think that Soul Pattinson has the best record when it comes to dividend growth. The business has grown its dividend every year since 2000. No other ASX share has dividend growth consistency like this company.

It owns a portfolio of assets – both listed and unlisted. The portfolio is diversified across sectors like telecommunications, building products, resources, agriculture, financial services and swimming schools.

The ASX dividend share receives dividends from its portfolio each year. The majority of that money is sent to shareholders as a growing dividend, with the rest kept to re-invest in more opportunities to enable further growth.

The company's FY22 ordinary dividend per share of 72 cents translates into a grossed-up dividend yield of 3.6%.

Duxton Water Ltd (ASX: D2O)

Duxton Water is a unique company on the ASX – its purpose is to own water entitlements and lease them to farmers on contracts of various lengths.

The ASX dividend share says that it has an "intention to pay a consistent and growing dividend stream". It just declared a dividend per share of 3.5 cents. It plans to increase this payment by 0.1 cents per share every six months to the 2024 interim payment which is guided as 3.7 cents per share.

Water entitlements could become increasingly important as more water-hungry crops are planted, such as almonds.

I think water entitlements are a good way to indirectly invest in the agricultural industry.

With the reported imminent end of La Nina – the wetter weather system – this could lead to less rain, pushing up water prices.

The FY23 grossed-up dividend yield from Duxton Water is expected to be 5.7% and the company has indicated an intention to lower debt because of the higher interest rates.

Brickworks Limited (ASX: BKW)

Brickworks is one of the largest manufacturers of building products in Australia, with offerings such as bricks, paving, masonry and roofing.

Interestingly, the ASX share owns a significant chunk of Soul Pattinson shares, which provides Brickworks with growing dividends and stability – very handy with the cyclical nature of building products.

But, for me, without praising Soul Pattinson again, another very positive side of Brickworks is that it owns half of an industrial property trust where advanced warehouses are being built on excess Brickworks land that has been sold into the trust.

Businesses like Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Amazon are some of the tenants in the huge warehouses.

Brickworks said that the property portfolio's valuation has seen the "positive impact of rental growth outstrip the effect of capitalisation rate expansion." It also has a large development pipeline. At the end of the FY23 first half, Brickworks' net property trust assets are expected to exceed $2.2 billion and this could keep rising as properties are completed.

The property trust rental profit and Soul Pattinson's dividend have helped increase the Brickworks dividend steadily over the past several years.

Brickworks currently has a grossed-up dividend yield of 3.7% and it hasn't cut its dividend for over 40 years.

The post 3 ASX shares I own for passive income appeared first on The Motley Fool Australia.

Well, good dividend investing isn't that simple. And in fact, following this 'chasing yields' path is probably a bad idea. Actually, it's a horrendous idea – and one that will probably result in mediocre dividend income, while perhaps giving you some nice capital losses.

See, the dividend yields that we normally see quoted for ASX shares are a reflection of the dividends a company has paid out in the past, not what it will pay out in the future. Take what used to be a popular dividend share, AGL Energy Limited (ASX: AGL).

What does an ASX dividend trap look like?

In 2022, AGL paid out two dividends, one worth 16 cents per share, and one worth 10 cents per share. Using the AGL share price of $8.07 that the company ended 2022 at, those two dividends would have given AGL a dividend yield of 3.22%. That's because 26 cents is 3.22% of $8.07.

Today, the AGL share price is going for $6.89 at the time of writing. That should in theory increase AGL's dividend yield because 26 cents is 3.22% of $8.07, but 3.77% of $6.89. If AGL paid out the same 16 cents per share interim dividend in 2023 as it did in 2022, this would be true.

The problem is that last month, AGL announced its interim dividend would come in at 50% of 2022's levels – yep, just 8 cents per share.

As such, AGL's dividend yield is now 2.61%. So any investor who bought AGL shares a month or two ago expecting a dividend yield of 3.22% or 3.77% has now been caught in a classic dividend trap.

They've lost the yield they thought might be coming their way. And, they've had to endure AGL shares' near-15% drop in value over 2023 thus far.

Everyone in the share market loves a good dividend. So when you see a company offering a dividend yield of 8, 9 or even 10%, it should tell you that investors are staying away for a reason.

Let's take a high-yield example now.

WAM Capital Ltd (ASX: WAM) is a listed investment company on the ASX. It paid out two dividends last year, both worth 7.75 cents per share each. That's an annual total of 15.5 cents per share, giving WAM Capital a whopping dividend yield of 9.2% right now.

So why isn't everyone flocking to WAM Capital shares for that kind of return and thus increasing WAM Capital's share price and reducing its yield down to a more normal level?

Well, investors are being put off by something.

High yield doesn't mean high return

It might be this company's performance track record. Even though this listed investment company (LIC) is yielding a massive figure right now, shareholders have only enjoyed a return of 3.7%, an average over the past three years (as of 31 January)

That means that capital losses have more than offset this high dividend yield. And that's without accounting for WAM Capital's 1% per annum management fee either.

Investors would have been far better off investing in an index fund than this company over the past three or five years. What's more, as of 31 January, this company only had 14.7 cents per share in its profit reserve. Yet last year it paid out 15.5 cents per share in dividends.

So no wonder its dividend yield is so high – the market clearly has doubts over this company's future performance potential.

Compare that to an ASX dividend share like Washington H. Soul Pattinson and Co Ltd (ASX: SOL). On the surface, Soul Patts' current dividend yield of 2.8% doesn't look that impressive. But this figure hides much.

It hides how Soul Patts has increased its dividend every single year since 2000, averaging an 8.5% increase per annum. It also hides that Soul Patts shareholders have enjoyed a total return of 12.5% per annum over the 20 years to December 2022.

Sometimes, a small dividend yield can be worth more than a big one. So don't be deceived by the largest dividend yields on the ASX. Some, if not most, of them are too good to be true.

The post Don't be deceived by ASX dividends appeared first on The Motley Fool Australia.

The tricky thing is knowing what sort of ideas to look at. There are some businesses that may seem like they have very high dividend yields, but the last 12 months of dividends may not be the same as the next 12 months.

For example, we recently saw in Rio Tinto Limited's (ASX: RIO) 2022 result that its total dividend per share was cut by 53% after a 41% drop in net profit after tax (NPAT).

If investors were expecting the same dividend from the ASX mining share, they may have been disappointed. But, I don't think it's wise to expect that miners can pay the same level of dividend year after year because resource prices can significantly change if supply and demand change heavily too.

For investors looking for a high level of income – somewhere in the region of 10% or higher –  we're talking about a business that doesn't have a high valuation and is paying out relatively a large amount of its annual profit. If an investor were looking for an ASX share that could provide over $1,000 of dividend income from a $10,000 investment consistently, I have an idea.

Shaver Shop Group Ltd (ASX: SSG)

Shaver Shop owns a national network of stores across Australia. It's also looking to grow in New Zealand, which is unlocking more growth for the ASX dividend share. The company has a total of 122 stores.

It sells a wide range of male and female grooming products. But, it's also expanding its range with other categories like oral care, hair care, massage, air treatment and beauty categories.

Despite all the worries about the economy, its financials continue to look good. The FY23 half-year result saw total sales increase 3.8% to $131.9 million, NPAT went up 4.5% to $13.7 million and the interim dividend was bumped up by 4.4% to 4.7 cents per share.

It's that dividend growth that I particularly like. It has steadily grown its dividend each year since 2017 (when it first started paying a dividend).

The first seven weeks of the second half of FY23 saw gross profit growth, even though total sales dropped 2.1%. This was thanks to a higher gross profit margin.

Using the last two declared dividends, Shaver Shop currently has a grossed-up dividend yield of 12.6%. That would create $1,260 of annual passive income (including franking credits) from a $10,000 investment.

Is this a good idea?

For investors that have a low tax rate and are focused on dividends, I think Shaver Shop could be an effective ASX dividend share to choose. However, I'm not sure the company's share price can deliver tons of share price growth from here.

High-yield dividends may not suit every investor. There are other businesses which could deliver a solid amount of dividend income, but also achieve stronger after-tax total returns over the long-term.

A few S&P/ASX 200 Index (ASX: XJO) shares that may be able to deliver a combination of dividends and growth include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and Wesfarmers Ltd (ASX: WES). But, the starting dividend yields are lower from these names.

The post Should I target $1,000 of annual dividends by investing $10,000 today? appeared first on The Motley Fool Australia.

There are some ASX shares that have been very generous dividend payers over the last decade, like BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA). But, with how large they are, I don't believe they have enormous capital growth potential.

However, businesses that have more growth potential could be an excellent choice to deliver a steady stream of dividends as well as compound growth in the coming years.

I wouldn't advocate putting all of someone's money into just one business. However, some investments do have a lot of underlying diversification. While there are a number of exchange-traded funds (ETFs) that offer compelling diversification in just one investment, many don't provide good dividend yields.

But, there are a few different ASX dividend stocks that could provide that diversification, good dividends instantly and long-term growth. Today, I'm going to tell you about Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

It's an 'investment conglomerate'. It's like Warren Buffett's Berkshire Hathaway because Soul Pattinson invests in listed businesses and private businesses/assets.

Dividend yield

One of the most important aspects of an ASX dividend stock is the income we're going to get. I like large dividends, but I'm happy to receive a smaller yield if it gives a better chance of dividend growth each year and more re-investment.

Soul Pattinson grew its FY22 full-year dividend by 16.1% to 72 cents. At the current Soul Pattinson share price, that translates into a trailing grossed-up dividend yield of 3.6%.

While dividend growth is not guaranteed, the company has grown its dividend every year since 2000, so I think the future yield-on-cost will be even more compelling.

The dividend is funded by the cash flow that Soul Pattinson receives from its portfolio of investments. As its investments grow profit and pay larger dividends, that means Soul Pattinson can fund higher dividends too.

Long-term growth

Soul Pattinson aims to find resilient investments that it believes can grow both the dividends and capital value over time.

That has resulted in a portfolio of names like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Macquarie Group Ltd (ASX: MQG), as well as private investments like agriculture and an electrical parts business called Ampcontrol.

At the company's annual general meeting (AGM) it said that over the prior 20 years, the ASX dividend stock had delivered an average total shareholder return (TSR) per annum of 12.5%.

Past performance is certainly not a reliable indicator of future performance. However, investing $1,500 per month and achieving an average return per annum of 12.5% would take 18 years to reach a $1 million portfolio. If the returns going forwards are lower than 12.5% per annum then it will take longer to achieve the $1 million goal.

'Revolving diversification'

I think one of the most underrated factors that makes a good investment is longevity.

It seems somewhat inevitable that many companies and technologies are replaced over time. Kodak, Blackberry and IBM are not the giants they used to be.

There are very few companies that we can hold, own forever and likely see good returns.

What I like about ETFs and Soul Pattinson is that their portfolios can change, removing the losers and investing in the current/future winners. I think it's this ability that will help the ASX dividend stock continue to be a solid performer for the next 10 to 20 years.

The post Invest $1,500 each month in this ASX dividend stock to actually create a $1 million portfolio appeared first on The Motley Fool Australia.

It could be a tricky question to answer – every household's finances are different. Some people may have a big mortgage, others may own their own home debt-free. One household may have a fancy sports car, with an equally eye-catching car loan.

Each household may also have different lifestyle goals in retirement. How much we need to pay for the essentials is one thing, but funding an annual cruise would add a lot more to the cost.

Estimates for comfortable retirement

Research by the Association of Superannuation Funds of Australia shows that if a couple who own their own home wants to have a comfortable retirement, they will need an annual income of $67,000. A single person would need an annual income of over $47,000.

That spending includes a reasonable allowance for leisure, holidays, health services, and so on.

But for an individual, or household, who doesn't own their own home, the rent or mortgage could mean an extra $10,000, $20,000, $30,000 — or even more — is needed in additional investment income from ASX dividend shares.

How much do we need invested in ASX dividend shares

Once the investor has roughly figured out how much they're going to spend per year in retirement, then we can figure out the investment income needs. Certainly, a financial planner would be very helpful here for working out what the specific goals and objectives are.

But, in simple terms, it's a combination of the dividend yield and the size of the portfolio.

A $1 million portfolio could have a 2% dividend yield and pay $20,000 per year in dividends.

A $300,000 portfolio might have a dividend yield of 10% and pay $30,000 per year in dividends.

Of course, in general terms, the higher the dividend yield, the riskier it might be and the higher chance there could be a dividend cut in the short-to-medium term.

For quality ASX dividend shares, I prefer to look at names that have dividend yields of between 3% to 9% and have a record of growing dividends over time.

If we use the mid-point of the range I just said – 6% – and target $67,000 of annual dividend income, then it suggests the portfolio would need to be over $1.1 million in size.

The 6% figure is just an average though. As an example, there are some names that could pay a dividend yield of around 6% in 2023 such as Telstra Group Ltd (ASX: TLS) and Charter Hall Long WALE REIT (ASX: CLW).

There are others with lower current yields, such as Wesfarmers Ltd (ASX: WES) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), but they have an objective of growing shareholder payouts.

Then there are ASX dividend shares that have very high dividend yields, like Shaver Shop Group Ltd (ASX: SSG) and Metcash Limited (ASX: MTS).

If an investor wants to choose businesses that are seen as defensive ASX shares but still reach that passive income goal, then they'd need to keep saving and growing their wealth until they get to the target dividend amount.

Foolish takeaway

ASX dividend shares could be the key to unlocking a life of pleasing dividends and easy cash flow. But, it could take a portfolio of around $1 million to achieve the targeted amount. Yet, of course, there are still investment risks, as well as volatility, to keep in mind.

The post How much do you need in ASX shares to give up work and live only off dividend income? appeared first on The Motley Fool Australia.

I'm looking for businesses that can grow profit beyond the foreseeable future. It can also help wealth-building if those investments pay dividends. I think investors can benefit from companies that can produce both growing dividends and profit growth over time, which could lead to very good returns over the long term.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Pattinson is one of the oldest businesses on the ASX. It was listed in the 1900s as a pharmacy business but the company is now a diversified investment house. It has investments across a range of different sectors including financial services, resources, telecommunications, building products, agriculture, and so on.

The business has been growing wealth for shareholders for a long time. At the company's annual general meeting (AGM), it said that its total shareholder returns (TSR) were an average of 12.5% per annum over the prior 20 years, which was 3.4% higher than the All Ordinaries Accumulation Index (ASX: XAOA).

This ASX share has also grown its dividend every year since 2000. Over the last 20 years, it has grown at a compound annual growth rate (CAGR) of 8.5%.

The company continues to grow and diversify its investment portfolio, with long-term growth potential.

iShares S&P 500 ETF (ASX: IVV)

One of the world's greatest investors, Warren Buffett, has suggested that most investors would do very well with an S&P 500 fund. That's because they typically come with low management costs and offer investors significant diversification. The ASX share has an annual management fee of just 0.04%.

Taking a passive approach means investors can just sit back and (hopefully) enjoy the long-term growth of the exchange-traded fund (ETF).

The S&P 500 represents 500 of the biggest and most profitable businesses listed in the US. While they're listed in the US, many of them are global businesses such as Microsoft, Alphabet, Amazon.com, Apple, McDonald's, Costco, Starbucks, and so on.

Past performance is not a guarantee of future returns, but over the past five years to January 2023, the iShares S&P 500 has made an average return per annum of 12.3% and over the past decade, the average return per annum was 16.98%.

VanEck Morningstar Wide Moat ETF (ASX: MOAT)

This ETF is constructed by a team of analysts at share research outfit Morningstar.

The ETF only invests in US shares, not ASX shares, though the underlying earnings are usually globally diversified.

The VanEck Morningstar Wide Moat ETF considers businesses from a watchlist of companies that are deemed to have competitive advantages that are expected to endure for at least a decade and probably for two decades.

But, it doesn't own hundreds of positions. It currently has 49 holdings as at 16 February 2023. The investment team believe that the shares were "trading at attractive prices relative to Morningstar's estimate of fair value".

This ETF has actually outperformed the S&P 500. Over the past five years, it has produced an average return per annum of 14.54%, that's after the annual management fee of 0.49%. But, remember that past performance is not a guarantee of future returns.

The post 3 ASX shares that could create lasting generational wealth appeared first on The Motley Fool Australia.

It's true that term deposits are now offering much better interest rates compared to 12 months ago.

Savers can now get very competitive rates on their savings. For example, when looking at term deposits from the big banks of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and ANZ Group Holdings Ltd (ASX: ANZ), we can now see a few term deposit percentage rates starting with a 4.

But, despite the much better interest rates, I think ASX 200 dividend shares are more likely to make us wealthy.

Stronger income compounding potential than term deposits

If I put $10,000 into a term deposit with an interest rate of 4%, in 12 months I'd receive $400 in interest.

To benefit from the power of compounding, I'd need to leave the $400 of interest with the bank and re-invest the $10,400 for another 12 months. At the end of year two, I'd be paid $416 of interest, leaving me with $10,816.

But, ASX 200 dividend shares can deliver more growth, in theory.

If I put $10,000 into an ASX 200 dividend share that had a share price of $10, I'd get 1,000 shares. If that business had an expected 4% dividend yield, I'd get $400 in dividends after the first year. I could re-invest the dividend and let's say I could buy another 40 shares (probably using a dividend re-investment plan), leaving me with 1,040 shares if the share price is still $10.

Let's say that when the company reported its next full-year result it decided to grow the dividend by 10% after achieving earnings growth, resulting in $440 from my original 1,000 shares and $17.60 from my extra 40 shares, meaning a total of $457.60 of income paid in year two.

Assuming the share price didn't change, my original $10,000 investment has turned into $10,858.

It's the ability of a company to grow the dividend alongside earnings that can supercharge passive income combined with re-investment, rather than simply relying on re-investing the income each year.

Of course, it's not just income that makes up the returns of ASX 200 dividend shares. Capital growth is a big part of the picture.

Capital growth adds to returns

Let's use the biggest ASX exchange-traded fund (ETF) as an example. The Vanguard Australian Shares Index ETF (ASX: VAS) tracks the S&P/ASX 300 Index (ASX: XKO), which is very similar to the ASX 200 and owns many of the same ASX 200 dividend shares.

Since the ETF's inception in May 2009, the fund has produced an average return per annum of 9.21%. Around half of that was from income – an average of 4.64% per annum, more than the dividend yield in my above example – and half of the total return was from capital growth. This shows how the ASX as a whole has performed, and the split of returns.

We don't know what share prices are going to do this month or this year. But, if earnings keep growing then I think ASX 200 dividend shares give themselves a great chance of growing the share price (and the dividend payout).

Which ASX 200 dividend shares to buy?

I like the look of businesses that are capable of producing long-term earnings growth and dividend growth. For example, in this article, I mentioned Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Sonic Healthcare Ltd (ASX: SHL), and APA Group (ASX: APA) and I also cover Wesfarmers Ltd (ASX: WES) shares sometimes.

I believe these are the sorts of names that can make better income returns and total than term deposits.

The post Banking on term deposits to retire rich? I'd buy ASX 200 dividend shares instead appeared first on The Motley Fool Australia.

What if you had no investments and wanted to create a portfolio right now?

What are the first five stocks you would buy as the foundation for your investment stable?

This is a great hypothetical to think about to suppress all the noise, macroeconomics and short-term greed. It forces one to consider the genuine long-term prospects of ASX shares.

As a prime example, TMS Capital portfolio manager Ben Clark was recently asked this very question.

Here are the ASX shares he picked:

Start with some old favourites

Clark would start painting his blank canvas with western Australian conglomerate Wesfarmers Ltd (ASX: WES).

"Wesfarmers is a business, which I truly believe, whose management looked after the shareholders superbly," Clark said in the On The Couch podcast.

"Bunnings, time and again, has proven to be an incredibly good business to own… This lithium venture's about to come online in the next year or two."

Wesfarmers' is "cashed up", and Clark feels it can exploit the current downturn to take on even more exciting business ideas.

The next two to add to the portfolio would be CSL Limited (ASX: CSL) and Macquarie Group Ltd (ASX: MQG).

"You got to have Macquarie in there," said Clark.

"It's driven by some of the smartest people in the country and on the planet, who are all heavily incentivised to make money for themselves and the business."

For Clark, though, Macquarie differs from many of its international investment banking rivals.

"You've got this very strong risk [management] attitude across the bank, at the top of the bank," he said.

"The business just continues to ground out higher and higher earnings."

'Bedrock of a portfolio'

The fourth pick is Brickworks Limited (ASX: BKW) or Washington H Soul Pattinson and Co Ltd (ASX: SOL), both of which own a considerable amount of each other's shares.

But funnily enough, the ownership overlap doesn't seem to correlate to synchronous movements in their stock prices.

"You do find their share prices not correlated, bizarrely, because they should be," said Clark.

"So sometimes Brickworks will appeal to us more, and sometimes Soul."

Similar to Macquarie and Wesfarmers, these companies have fingers in many different pies. The diversity seems to smooth out their fortunes over time.

Both Soul Patts and Brickworks are famous for increasing their dividends each year over many decades, regardless of how the economy or the stock market is doing.

"Rising stream of income over many, many years. It's the bedrock of a portfolio."

A 'misunderstood' gem

The fifth stock to add is mining royalties company Deterra Royalties Ltd (ASX: DRR).

"It's an incredibly interesting business. But I still think it's misunderstood."

Despite the massive presence of mining companies on the ASX, listed royalties companies are few and far between. According to Clark, they are much more common on the Canadian and New York stock exchanges. 

But most seem to earn their keep from gold extraction and the subsequent profits of their tenants. Plus the mines have fairly short lives.

Deterra has none of those things.

"What Deterra has is globally unique," he said.

"Deterra owns a 1.232% royalty over the MAC [Mining Area C], which about two-thirds of BHP Group Ltd (ASX: BHP)'s total iron ore production comes out of… It's done on revenue, not profit."

Also, the MAC mine has an estimated 60-year life, and BHP is increasing production out of it over the next few years.

These differences mean there is much more certainty over the income.

"This year, it should push out, including franking credits, a yield of about 11% or 12%," said Clark.

"And it's got net cash on the balance sheet, and I think at some stage, one of those big resource players will come sniffing for it."

The post 5 ASX 200 shares I would buy if I was starting from scratch: expert appeared first on The Motley Fool Australia.

If I were relying on dividend income in retirement, I don't think I'd want to see my dividend income jump around. That's why I'm cautious about buying names like BHP Group Ltd (ASX: BHP) and Woodside Energy Group Ltd (ASX: WDS) after a strong run.

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that owns a portfolio of farmland around Australia including cattle, almonds, macadamias, vineyards and cropping (sugar and cotton).

With interest rates now a lot higher, it has pushed down the Rural Funds share price. Since the end of 2021, it has fallen by around 20%. This has the effect of pushing up the prospective distribution yield for the ASX dividend share.

How much passive income could the business pay? Rural Funds aims to grow its distribution by 4% per annum, which is normally faster than inflation.

It's expected to pay a total distribution of around 12.2 cents per unit, which would be a forward distribution yield of around 5%. That'd probably be a good yield for retirees.

On the rental side, the business is benefiting from inflation because some of the rent is linked to CPI inflation.

Farmland has been a useful asset for centuries, which I think will continue for more than the foreseeable future.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

The ASX dividend share could be the steadiest eddy in terms of passive income. It has grown its dividend every year since 2000, which is the longest streak on the ASX.

Soul Pattinson is an investment house that's invested in a variety of assets, including ASX shares like Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG), Pengana Capital Group Ltd (ASX: PCG), New Hope Corporation Limited (ASX: NHC), Macquarie Group Ltd (ASX: MQG) and many more.

It also has a portfolio of unlisted businesses including electrical parts, agriculture, swimming schools, luxury retirement living and so on.

Soul Pattinson expands its portfolio every year while paying out a majority of its cash flow each year as a dividend.

The business' portfolio is focused on investments that can provide good cash flow through the economic cycle, while also looking for platforms of growth. I think retirees would like this combination of dividends and growth.

How much passive income will the company pay in FY23? Commsec numbers currently suggest that Soul Pattinson could pay an annual dividend per share of 77 cents, which translates into a grossed-up dividend yield of 3.8%. The Soul Pattinson share price is down around 25% since September 2021.

The post Retirees: 2 steady eddies to provide ASX passive income on the cheap appeared first on The Motley Fool Australia.

But, like any other asset class, investing in ASX shares successfully is not easy. There are many mistakes you can make along the way. It's fine to make mistakes, how else would we learn?

So here are some of the things I'd wish I knew before I got started with investing in shares. Hopefully, you can avoid making the same errors as I did.

3 things I wish I'd known when I started investing

Index funds are your friend

An index fund like the Vanguard Australian Shares Index ETF (ASX: VAS) is a single investment that puts your money into a basket of shares. In most cases, it will be the 200 or 300 largest shares on the share market. With an index fund, you are getting the return of the broader market, no more, no less.

When I started out, I had grand plans of smashing the market, year in, year out. But being able to do this takes a lot of time and experience. I wish I started investing in an index fund as my first investment rather than choosing the individual shares I did at the start of my journey.

These days, I invest in both index funds and ASX shares. That way, I can get the market's return on some of my capital while using the rest to try and achieve outperformance. But I wish I had started out that way. If I had, I would be in a better financial position today.

You can be too diversified

As a beginner investor, you will constantly hear about the benefits of diversification or 'not putting your eggs in one basket'. This is sage advice. But it is possible to have too much diversification. When I started my investing journey, I wanted to have a finger in every pie.

I held dozens and dozens of shares after a few years, covering emerging markets, the US markets, the ASX, and 'alternative assets' like water rights and property.

But after a while, I realised I had too many investments in my portfolio to properly keep track of. And this started to hurt my returns. If I could go back and do things differently, I would stick to a portfolio of 15-20 investments that I have a deep understanding of from the start.

Boring can be best

When I first began my investing journey, I loved investing in exciting companies that were 'disruptive', were 'doing things differently' and that I found exciting. As the years went on, many of these investments turned out to be lemons.

Today, I have rediscovered the beauty of a boring investment. Companies that have been around for decades might not be the most exciting investments out there. But most old companies are old for a reason – they know how to run their business, sell their products, survive and thrive during the inevitable recession.

That's why some of my favourite investments today do not feature the likes of Zip Co Ltd (ASX: ZIP), Brainchip Holdings Ltd (ASX: BRN) or Nuix Ltd (ASX: NXL)

Instead, some of my favourite investments include Washington H Soul Pattinson and Co Ltd (ASX: SOL), Coca-Cola Co (NYSE: KO), Wesfarmers Ltd (ASX: WES) and McDonald's Inc (NYSE: MCD).

Sometimes, especially for new investors, boring can be better.

The post Buying ASX shares as a beginner? Here are 3 things I wish I'd known appeared first on The Motley Fool Australia.

An ASX 200 dividend stock with a five or ten-year streak of raising their dividends is usually a good sign that you've found a quality income stock. But an ASX 200 dividend stock with a 20-year-plus streak? That's ASX dividend royalty.

That's exactly what the Washington H. Soul Pattinson Co Ltd (ASX: SOL) share price has on offer for income investors today.

Why Soul Patts is a quality ASX 200 dividend stock

I already own Soul Patts shares – in fact, the company is one of my top ASX holdings. But I plan to add far more of this would-be ASX dividend aristocrat to my portfolio in 2023, if the pricing allows it.

I would go one step further and argue that if I had to own just one ASX 200 dividend stock in my portfolio, this would be it.

But let's backtrack a little and get into the weeds of what makes this company such a special ASX dividend share.

So Soul Patts is one of the oldest companies on the ASX 200. It first put down roots way back in 1872, but become the company we know today in 1903. Its first calling was pharmacies, but today, Soul Patts is a bit of a hard company to pigeonhole.

Its primary business is owning large stakes in other investments for the benefit of its shareholders. In this way, it arguably functions closer to a listed investment company (LIC) or a managed fund rather than the typical kinds of companies we see on the ASX.

Soul Patts invests prudently in a large and diversified portfolio of assets. These include a portfolio of blue-chip shares gained in the LIC Milton Corporation acquisition in 2021. But it also includes its large, strategic investments in a handful of ASX shares. 

For example, Soul Patts owns 12.6% of TPG Telecom Ltd (ASX: TPG), 39.9% of New Hope Corporation Limited (ASX: NHC) and 43.3% of Brickworks Limited (ASX: BKW).

The company also owns a stable of unlisted assets, which includes assets ranging from industrial property to swim schools.

An ASX dividend aristocrat?

This diversified investment portfolio has given Soul Patts the unique distinction of being able to fund annual dividend increases every single year since the year 2000. That's throughout both the global financial crisis of 2007-2009, as well as the COVID pandemic.

This is an ASX dividend record unmatched on the ASX 200 or, indeed, on the entire ASX. It's the closest thing the ASX has to a United States-style 'dividend aristocrat', which is a US share that has increased its dividends every year for 25 years.

Back in December last year, Soul Patts announced during its annual general meeting that its total shareholder return (share price gains and dividends) came to an average of 12.5% per annum over the 20 years to 30 November 2022.

That was a good 3.4% per annum above what the ASX All Ordinaries Accumulation Index had achieved over the same period.

So, in conclusion, this is an ASX 200 dividend stock I will never own enough of. I can't wait to add to my position in 2023. If there's a compelling price point, I'll be loading the boat with this top-notch company.

The post 20+ years of growing dividends. Why I plan to buy more of this ASX 200 stock in 2023 appeared first on The Motley Fool Australia.

But a dividend share fundamentally lacks the safety that a term deposit or a savings account can offer. No ASX share can offer true safety of income.

But let's see how close we can get to true safety by checking out three of the most consistent dividend payers the ASX has to offer.

3 of the safest ASX dividend stocks in Australia

Washington H Soul Pattinson and Co Ltd (ASX: SOL)

Washington H. Soul Pattinson, or Soul Patts for short, was always going to make this list. That's by virtue of its unrivalled dividend track record on the ASX. This diversified investment company has increased its annual dividend payments every single year since 2000.

Yes, through the dot-com bust, the global financial crisis, and more recently, the COVID pandemic.

No other ASX share can even come close to matching this record, making this company one of ASX's safest dividend stocks. Soul Patts shares offer a fully franked dividend yield of 2.5% at recent pricing.

Brickworks Limited (ASX: BKW)

ASX 200 construction materials company Brickworks is another ASX dividend stock to consider if you're searching for safe income. Brickworks has a diversified earnings base, consisting primarily of its business of selling bricks and other construction supplies. But Brickworks also has a burgeoning property portfolio, as well as significant investments in other shares, namely Soul Patts by coincidence.

This has enabled the company to either maintain or increase its dividend every year for more than four decades. It doesn't quite have the clockwork-like bonafides of Soul Patts. But it still comes pretty close, making it one of the safest income shares on the market.

Brickworks currently has a fully-franked dividend yield of 2.6% on the table.

Commonwealth Bank of Australia (ASX: CBA)

CBA is one of the ASX 200's most famous dividend stocks. While it doesn't quite have the near-flawless dividend track records of the above two shares, I feel it still merits inclusion in this list due to the popularity of the big four ASX bank shares for income investors.

Looking at the other big four members, CBA's dividend record arguably shines out as one of the most impressive. Between 2009 and 2019, CBA raised its annual dividend every year, with the exception of the 2016 dividend, which was flat at 2015's levels.

CBA's payouts took a big hit during the COVID-ravaged 2020. But its dividends have been building back with a vengeance, with the bank giving investors big dividend hikes in both 2021 and 2022.

Last year, CBA doled out a total of $3.85 in fully-franked dividends per share, giving CBA a trailing yield of 3.46% today.

The post 3 of the safest ASX 200 dividend stocks in Australia appeared first on The Motley Fool Australia.

Investing in bonds essentially means buying debt. Generally, bonds are seen as less risky than shares because they are prioritised in the capital structure. If a company goes out of business, the bondholders are paid before shareholders (if equity holders get anything at all).

With interest rates now a lot higher, most bonds are offering investors a higher yield.

For example, Vanguard Australian Government Bond Index ETF (ASX: VGB) had a running yield of 2.8% on 31 December 2022, with a yield to maturity of almost 4%.

However, here's why bonds don't appeal to me that much. While they may have a fixed level of interest, that's essentially all bond investors will gain. One-off interest rate changes can impact bond valuations, as can concerns about bond investors being paid.

Skilled active investors may be able to buy bonds at a discounted price and sell them at a higher price. But, the income will largely form the basis of the return.

However, my preferred form of income investing is one that takes advantage of the power of compounding.

This ASX 200 stock can benefit from compounding

If someone invested $1,000 in a bond with a 4% yield, they'd get $40 of income over a year. After the end of 12 months, they could invest the $40 into bonds, but they wouldn't be able to spend the income. If they spent the $40 income, they'd be left with the $1,000 again – no growth, assuming the 4% yield stayed the same.

However, let's use an ASX 200 dividend stock as an example.

Imagine I invested $1,000 into Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares with a 4% grossed-up dividend yield. The total income would still be $40. But, an investor could spend that $40 and the business could still grow its dividend (and the investor's income) over the next 12 months as it re-invests its retained profit within the business for more growth.

According to Commsec, Soul Pattinson is expected to grow its annual dividend by 4.3% in FY24 compared to the projected FY23 payout.

Over time, ASX 200 dividend stocks can steadily grow and compound their earnings and dividends, even if investors spend that money on their living expenses.

Other reasons to like Soul Pattinson shares

It's an investment house, meaning it invests in other businesses, thus making it a diversified company thanks to its holdings. The company has investments in ASX shares like TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Brickworks Limited (ASX: BKW), Macquarie Group Ltd (ASX: MQG) and BHP Group Ltd (ASX: BHP).

It's also invested in private businesses such as electrical parts, agriculture, swimming schools and luxury retirement living.

The company has grown its annual ordinary dividend every year since 2000 and intends to keep increasing it. I think its income payments could be as resilient as corporate bonds, though nothing is guaranteed.

This ASX 200 dividend stock is already one of the largest positions in my portfolio, and I plan to regularly invest in it as time goes on. I like that the business can change its portfolio to be future-focused.

The post Forget bonds, I'd much rather buy this ASX 200 stock for its 4% dividend yield appeared first on The Motley Fool Australia.

There are many different types of assets that can produce income such as property, savings accounts, term deposits and bonds. For me, ASX dividend shares are the way to go.

I'm not just trying to buy the ASX shares with the highest dividend yield. Nor am I sticking with ASX blue-chip shares for my dividend goal. I believe there are businesses that are a bit smaller which can provide plenty of capital growth and dividend growth over time.

How I'm building towards my passive income dividend goal

It would be great if I were handed $1 million tomorrow so that I could invest and instantly reach my goal.

My actual strategy is to invest a monthly amount, however much my household has saved that month, into the most compelling ASX dividend share at the time that I can see.

I have a watchlist of individual businesses on the ASX, as well as listed investment companies (LIC). Some of the businesses that are currently in my portfolio include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Rural Funds Group (ASX: RFF), Fortescue Metals Group Limited (ASX: FMG), Duxton Water Ltd (ASX: D2O) and Bailador Technology Investments Ltd (ASX BTI).

Sometimes performance can be quite variable in the short term. Just look at the share prices of Fortescue and Bailador over the past year.

Each investment has a different dividend yield. But, let's say that the investment I make each month comes with an average dividend yield of 5%. Investing $1,000 that month would add an extra $50 of annual income. Investing $2,000 in a month would add $100 of extra income.

If the business paying me $100 of annual income in year one grows its dividend by 10%, then in year two I'd get $110 of annual passive dividend income from that investment.

Investing month after month, year after year will help me reach my $30,000 goal of income.

How long it takes will depend on how much I invest and how well those investments grow. I can control how much I invest, but I view it as important to spend money on things that make my family and me happy. I'm not trying to save every last dollar.

If I've chosen a good investment, then I just need to be patient and let it grow over time, including through volatility. The less tinkering the better. Compounding is a very powerful force if it's allowed to run its course.

Foolish takeaway

Receiving $30,000 of annual passive dividend income still seems like a long way off. But, I believe that if I just keep regularly investing I will get there, it's just a matter of time. Regular readers may know that I sometimes cover the shares I buy, so I'll be writing about where I'm seeing value for my own dividend-focused portfolio.

The post ASX passive income: My game plan to reach $30,000 per year appeared first on The Motley Fool Australia.

Dividends are not at all guaranteed payments. But, some dividend payments are more volatile than others because of the nature of their profits.

It's normal to see dividends from mining and energy shares go up and down because of the volatility of resource prices, which is why I wouldn't count on the dividends from Rio Tinto Limited (ASX: RIO) and Woodside Energy Group Ltd (ASX: WDS) being strong forever.

During recessions and major economic dislocations, it's normal for bank shares to cut their dividends like we saw during COVID-19 from names like Commonwealth Bank of Australia (ASX: CBA) and ANZ Group Holdings Ltd (ASX: ANZ).

So, with that in mind, I'm about to run through some ASX dividend shares that could continue to pay good dividends in the coming years. I'd love to invest $10,000 evenly between these four names.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

I think this ASX dividend share is the king of passive income. While it's unlikely to have the biggest dividend yield, its consistent dividend growth is impressive, in my opinion. It has grown its ordinary annual payout every year since 2000.

The company has a diversified portfolio, which is spread across a number of ASX shares and industries, including TPG Telecom Ltd (ASX: TPG), Tuas Ltd (ASX: TUA), New Hope Corporation Limited (ASX: NHC), Aeris Resources Ltd (ASX: AIS), Macquarie Group Ltd (ASX: MQG) and BHP Group Ltd (ASX: BHP).

Unlisted investments include agriculture, luxury retirement living, swimming schools and electrical parts.

Soul Patts pays expenses from the dividend income it receives and then distributes the majority to shareholders. It invests the retained cash into other businesses.

According to Commsec, this company could pay an ordinary grossed-up dividend yield of 3.9%

Rural Funds Group (ASX: RFF)

Rural Funds is a leading real estate investment trust (REIT) that owns a portfolio of farmland across Australia, with cattle, vineyards, almonds, macadamias, sugar and cotton.

It aims to grow its distribution by 4% per annum, which is typically more than inflation. The business is funding the higher shareholder passive income through contracted rental increases and productivity improvements (which unlocks further rental growth and improved farm values).

The ASX dividend share has increased its distribution by at least 4% every year since it listed several years ago.

With a guided 5% total distribution yield in FY23, I think this is a solid option for steady passive income and long-term growth in the coming years.

Sonic Healthcare Ltd (ASX: SHL)

I don't think the need for healthcare and pathology will disappear. Sonic's role in the healthcare process is very important, as we saw during the worst of the COVID-19 years as it conducted millions of COVID tests in places like Australia, the US and Europe.

The ASX healthcare share has a stated 'progressive dividend policy', so the board tries to reward investors with pay rises each year.

Sonic Healthcare is benefiting from elevated organic growth as delayed healthcare procedures due to the pandemic are finally carried out.

I like that the company has been making acquisitions to diversify and grow its earnings, giving it more financial firepower to hopefully pay bigger dividends.

According to Commsec, it could pay a grossed-up dividend yield of 4.5%.

APA Group (ASX: APA)

APA is a leading energy infrastructure business that owns a national gas pipeline, delivering half of the country's natural gas usage. The company also owns other gas assets, like storage and power generation.

It has a growing portfolio of renewable energy and electricity transmission assets. For example, it recently acquired Basslink, a cable asset that connects Tasmania with mainland Australia, enabling the export of renewable energy across the Bass Strait.

The company has grown its passive income every year for the past decade and a half, thanks to its steadily-growing cash flow, which is funding bigger payouts. It continues investing in projects, which will hopefully enable even bigger payments.

APA expects to pay a distribution of 55 cents per security in FY23, which translates into a forward distribution yield of 5.2%.

Foolish takeaway

An average dividend yield of 4.6% would generate $460 of dividend income per year. It's not the biggest yield, but it would hopefully grow every year. I believe these dividend payers can be resilient in downturns.

The post How to invest $10,000 this year to create 'safe' passive income appeared first on The Motley Fool Australia.

But, far from despairing, this has only hardened my desire to spend 2023 buying even more dividend-paying shares.

We've all heard the maxim 'buy low, sell high'. This is a principle I try my best to stick to. The S&P/ASX 200 Index (ASX: XJO) is still lower today than it was a year ago. That tells me that there might still be opportunities out there to buy myself some cheap shares.

But on a broader note, I think buying shares is almost always a better choice than not buying. History shows that trying to time the markets is a very bad idea. None of us knows what's coming down the road.

If today ends up being the last time the ASX 200 is at its current level, and the index surges 10% higher in 2023, we're all going to feel a little silly if we decided today that it's better to try and wait for a cheaper entry point.

Shares beat cash, so I'm buying more ASX dividend shares in 2023

The historical returns from shares trump the returns of cash over any long stretch of time. Shares also go up more than they go down. Thus, investing in shares rather than leaving your money in the bank is usually the better choice, if the past is anything to go by.

Plus, having dividend cash flow means you can have extra cash to reinvest back into those dividend shares too.

So this is why I'll be putting any extra dollars I have at my disposal in 2023 into ASX dividend-paying shares.

But not just any shares will do. I try and seek out the best-performing shares on the market. So I'll be looking to the likes of Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and MFF Capital Investments Ltd (ASX: MFF) to add to my portfolio.

I try and end each calendar year that passes us by with more assets to my name than what I had at the start. 2023 is no different.

The post Why I'll be buying more ASX dividend shares for my portfolio in 2023 appeared first on The Motley Fool Australia.

The ASX share market has plenty of options for investors to choose from to build wealth. An adult can start investing at any age – 20, 30, or even 70.

One of the most powerful tools we can use to help grow our finances is compounding. Albert Einstein, once supposedly said:

Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.

The longer we give compounding to work, the easier it is. But that doesn't mean it's not worth doing if we haven't started as early in life as we'd like.

Wealth-building examples

I think one of the easiest ways of showing how ASX shares can build wealth is with a compound interest calculator.

If someone was 30, had $0 invested, and decided to invest $500 a month, with a share portfolio returning an average of 10% per annum, it would grow into $343,650 after 20 years and almost $1 million after 30 years.

Investing $1,500 a month grows into $1.03 million after 20 years and $2.96 million after 30 years if it compounded at 10% per annum.

Don't forget that employees are meant to receive superannuation contributions which can play a big part in wealth building. Indeed, superannuation contributions could make up the majority of the necessary money needed to build someone's net worth to more than $1 million.

However, which ASX shares to invest in is an entirely different question.

One of the easiest investment options is an exchange-traded fund (ETF). An ETF allows investors to buy a whole group of shares at once, rather than having to buy one investment at a time. It can save a lot of time and brokerage fees, as well as enabling investors to track the market return for a low fee.

The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most diversified ETFs with more than 1,400 holdings across the world. The US has by far the biggest allocation of any country because that's where many of the world's global leaders are based, such as Apple, Microsoft, Alphabet, Amazon.com, Johnson & Johnson, Exxon Mobil, Berkshire Hathaway, and Nvidia.

Since its inception in November 2014, the ETF has returned an average of 10.6% per annum, though the past is not a guarantee of future results.

Which other ASX shares could generate good returns?

I think the best investment strategy is to invest for the long term. In terms of which ASX shares could be good investments for at least a decade or longer, names like VanEck Morningstar Wide Moat ETF (ASX: MOAT), Wesfarmers Ltd (ASX: WES), and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) could make good returns for investors in my opinion.

It's never too late to start investing. I would love to build a $1 million portfolio myself but it's going to take a lot of work to get there.

The post With almost no investments at 30, can ASX shares still make me rich? appeared first on The Motley Fool Australia.

Often the best wisdom from professional investors arises when they discuss ASX shares that have plunged in their portfolio, not the ones that have risen.

That's because the analysts explain why they chose to retain or sell those stocks.

And if they are keeping the faith then it's a great tip for other investors to buy, especially as the price has been discounted.

The portfolio managers at Elvest Fund, in a recent memo to clients, mentioned two S&P/ASX 200 Index (ASX: XJO) shares exactly in that situation.

Discounted stock despite great outlook 

The share price for construction products player Brickworks Limited (ASX: BKW) was down 1% in December, which the Elvest team felt didn't justify "a positive update".

"Brickworks announced expectations to deliver a record half-year result in its property division," read the memo.

"Not long after delivering a strong FY22 result, Brickworks expects to grow its net property trust asset base by $450 million to $2.2 billion in the first half of FY23."

As well as producing goods, Brickworks has substantial investments in real estate and fellow ASX-listed company Washington H Soul Pattinson and Co Ltd (ASX: SOL).

"Over the medium term, we see property underwriting Brickworks' current market cap, leaving substantial residual value within its 26% stake in Washington H Soul Pattinson, as well as the building products division."

The Brickworks share price has dropped 7.1% over the past year, leaving a dividend yield of 2.75%. 

According to CMC Markets, three out of five analysts that cover the stock recommend it as a buy. The remaining two rate Brickworks as a hold.

The reason why this travel stock is struggling and why it'll surge again

Christmas fortunes for Corporate Travel Management Ltd (ASX: CTD) were opposite, with the share price dropping 10.9% over December.

In fact, the stock has plunged almost 30% over the past 12 months.

If you visit any airport in Australia at the moment, it's obvious to see from the lengthy queues the travel industry is going gangbusters.

So what gives?

"Corporate Travel Management declined on news of leisure travel swamping airline capacity and therefore limiting availability for corporate travellers."

But that just means more upside, as far as the Elvest team is concerned.

"As capacity returns, which we believe will occur over the next 12 to 24 months, so too will corporate travel, albeit in the midst of a challenging economic environment," read the memo.

"Corporate Travel Management is attractively priced assuming recovery of pre-COVID activity over the coming years."

Elvest's peers broadly agree, with nine out of 12 analysts currently surveyed on CMC Markets recommending Corporate Travel shares as a buy.

The post 'Attractively priced': Why fund is excited by these 2 ASX 200 shares appeared first on The Motley Fool Australia.