How to turn $20,000 into $200,000 with ASX shares

I’m sure many investors dream of turning $20,000 into $200,000.

The good news is that this has been possible historically with the share market.

However, it is worth noting that it doesn’t happen overnight. Investors need patience, consistency, quality assets, and time to get there.

That means avoiding the temptation to chase speculative ASX shares and instead building a sensible plan around time, diversification, and regular investing.

Where to begin

A $20,000 starting investment gives an investor a solid foundation to build from.

It could be spread across a handful of high-quality ASX shares, a few diversified exchange traded funds (ETFs), or a combination of both. The key is avoiding too much reliance on one company or sector at the beginning.

An investor might look for exposure to businesses with strong brands, recurring revenue, defensive earnings, or long growth runways. They could also use ASX ETFs to gain instant diversification across Australia, the United States, or global markets. For example, the Vanguard MSCI Index International Shares ETF (ASX: VGS) offers exposure to a broad portfolio of international shares.

The goal at the beginning is simple: get the money working in quality assets.

Add more ASX shares regularly

The next step is to keep adding capital to your ASX share portfolio.

If an investor starts with $20,000 and contributes $500 a month, the portfolio will grow much faster than it would from just investment returns.

Assuming the portfolio earns an average annual return of 10%, which is broadly in line with long-term share market averages, making it a fair target (but not guaranteed), it would take around 12 years to build a $20,000 portfolio to $200,000.

It is worth remembering that the market rarely moves upwards consistently. Some years the market will be strong, others it may go sideways, and there will also be darker periods when it goes backwards.

Without the monthly contributions, the same $20,000 would take much longer to reach the target. In fact, it would take almost 25 years to get there based on the same target return.

Stay invested through volatility

As mentioned above, the market will not move up in a straight line.

Share prices will move around, bad headlines will appear, and some holdings will disappoint. But selling in panic can interrupt the compounding process.

During these periods, an investor would be better to review the quality of their investments, not just the share price. If the long-term investment case remains intact, it could be wise to hold and perhaps even wiser to buy more at cheaper prices.

Overall, turning $20,000 into $200,000 is about building good habits, staying diversified, and giving the market enough time to work. By doing this, investors give themselves a great chance to build significant wealth in the share market.

The post How to turn $20,000 into $200,000 with ASX shares appeared first on The Motley Fool Australia.

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• 3 ASX ETFs to diversify away from a flat Aussie market
• 3 reasons why this ASX ETF could be an incredible buy-and-hold forever idea

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.