How to retire early with ASX shares and the power of compounding

Retiring early is a dream for many Australians, but it often feels out of reach.

The truth, however, is that early retirement has less to do with earning a massive salary and far more to do with how early and consistently you invest.

And the most powerful tool working in your favour is compounding.

To show how achievable it can be, let’s see what could happen to a 30-year-old investor who commits to putting $1,000 a month into ASX shares and earns an average return of 10% per year.

It may not feel like much at first, but the numbers become surprisingly exciting over time.

Here’s how compounding can quietly transform your financial future.

Why compounding is the key to early retirement

Compounding is what happens when your returns start earning returns of their own. The longer your money stays invested, the harder it works. In the early years, progress is slow and almost unnoticeable. But as the years roll on, growth snowballs rapidly.

This is why time matters more than timing. A consistent investor who starts early will almost always beat the person who waits for perfect market conditions.

When you reinvest everything and stay patient, your portfolio becomes its own growth engine.

$1,000 a month in ASX shares

If our 30-year-old invests $1,000 every month into a diversified portfolio filled with quality ASX shares like Goodman Group (ASX: GMG), Macquarie Group Ltd (ASX: MQG), and TechnologyOne Ltd (ASX: TNE), and that portfolio compounds at 10% per year, here’s what happens:

After 10 years, they would have contributed $120,000, but their portfolio could be worth around $200,000.

After 20 years, that same investor would have contributed $240,000, but thanks to compounding, the portfolio could grow to around $725,000.

That might be enough for many investors to call the boss and hand in their retirement notice.

But if you want to keep going, then you could end up with an even greater nest egg. If you were to stay invested for a total of 30 years, your portfolio could climb to approximately $2.1 million.

Foolish takeaway

If you’re 30 today, the path to early retirement is far more achievable than it appears. Start now, stay consistent and let compounding turn monthly investments into life-changing wealth.

The next two to three decades will pass either way, the question is whether you want your money growing while they do.

The post How to retire early with ASX shares and the power of compounding appeared first on The Motley Fool Australia.

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