How I’d aim to build a $1 million ASX share portfolio in 20 years

Building a $1 million share portfolio can sound like a goal reserved for people starting with a lot of money.

But time and consistency can change the picture considerably.

If I were aiming for that target over the next 20 years, this is how I would approach it.

Start with $20,000 and keep adding

Let’s assume I begin with a $20,000 ASX share portfolio and invest another $1,500 each month.

That works out to $18,000 of new money every year.

If the portfolio produces an average return of around 9% per annum, those contributions could grow to approximately $1 million over 20 years.

I should point out that there are no guarantees the market will deliver 9% annually. Returns will vary considerably from year to year, but 9% is roughly in line with the historical average annual return.

I think this example shows why I would focus less on finding one spectacular investment and more on keeping money invested for a long time.

I would also reinvest dividends where appropriate and give successful investments time to grow rather than constantly trading in and out of the market. This will allow compounding to do its work.

Focus on quality businesses

If I were choosing individual ASX shares, I would want companies capable of becoming more valuable over many years.

That means looking for strong competitive positions, healthy balance sheets, capable management, and genuine opportunities to keep growing.

This could mean ASX shares like Goodman Group (ASX: GMG), Cochlear Ltd (ASX: COH), TechnologyOne Ltd (ASX: TNE), and Macquarie Group Ltd (ASX: MQG).

The goal would not be to predict which share performs best next month. I would be trying to assemble a collection of businesses capable of compounding earnings and value throughout much of the 20-year period.

Diversification would also be important. It is worth remembering that even businesses that look excellent today can disappoint. So, having a portfolio with sufficient diversification could offer some downside protection.

Consistency could be the biggest advantage

I think the $1,500 monthly contribution into ASX shares is just as important as the return assumption.

There will inevitably be periods when markets fall sharply and investing feels uncomfortable.

Those could actually be some of the most valuable months to keep contributing, because the same $1,500 buys more shares at lower prices.

Foolish takeaway

I would not expect the journey to $1 million to be smooth.

But starting with $20,000, investing $1,500 each month, and targeting a long-term return of around 9% gives the goal a realistic foundation.

For me, the strategy comes down to three things: quality investments, consistent contributions, and enough patience to let compounding do its work.

The post How I’d aim to build a $1 million ASX share portfolio in 20 years appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Cochlear, Goodman Group, and Macquarie Group. The Motley Fool Australia has recommended Cochlear, Goodman Group, and Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.