If you’re anything like me, you’re probably hoping your investment in ASX shares will make you a millionaire. But when the S&P/ASX 200 Index (ASX: XJO) plummets lower it can make you question your investment strategy.

But the reality is that the maths behind investing is quite straight forward. Let’s take a look at how ASX shares can help you become a millionaire by the time you reach retirement.

How to use ASX shares to become a millionaire

Let’s check out an example to demonstrate. Consider your average 35 year old investor with a diversified ASX share portfolio. To keep things simple, we’ll ignore taxes and brokerage on shares and assume an 8% per annum average return with dividends reinvested.

This average investor starts with $50,000 in ASX shares and adds $5,000 per year to his portfolio. 

What we can see is that, through the magic of compound interest, his investment in ASX shares can most definitely make this investor a millionaire by the retirement age of 65. Even 10 years prior to retirement, this ASX share portfolio is worth $461,858. However, by retirement age, the portfolio has more than doubled to $1,069,549 and the investor has become a millionaire.

How can you do the same with your ASX share portfolio?

So, what does this example really tell us? The answer is that a diversified share portfolio and long-term outlook can really pay off in the future.

While the Afterpay Ltd (ASX: APT) share price might have rocketed 400% higher since mid-March, it’s not a wise strategy to put all your eggs in one basket.

By constructing a portfolio of high-quality ASX shares and holding for decades ahead, you could generate the 8% per annum average return illustrated in this example.

Of course, it’s wise to invest only what you can afford to lose. You don’t want to be forced to sell at a bad time because you over-invested and suddenly need that cash back.

It’s also important to remember that it’s never too late to start investing. Every day your money is in the market is a day that it can potentially be working towards make you a millionaire.

More reading

• Is the Afterpay share price a buy at $44?
• Top brokers are urging you to buy this slumping ASX 200 stock next week
• 3 ETFs perfect for an ASX growth investor
• ASX 200 drops 1% on Friday
• The latest ASX small caps broker picks to buy today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Is the Afterpay Ltd (ASX: APT) share price a buy at $44?

Amazingly, the Afterpay share price has risen by 400% over the past two months from the coronavirus price of $8.90 on 23 March 2020. That’s some recovery.

Perhaps some investors thought that the Afterpay model was about to come unstuck. Maybe they thought that every active customer wasn’t going to pay their most recent balance. Clearly that wasn’t the case.

Afterpay has managed to keep growing despite the worries about the worrying coronavirus economic conditions. I think Afterpay has done the right thing by adjusting its risk settings so that it’s a bit more cautious during this period.

The third quarter of FY20 still saw solid growth with total underlying sales growth of 105% compared to FY19. Within that, US growth was 263% and ANZ growth was 40%.

April saw average daily underlying sales growth of approximately 10% globally compared to the second half of March. Promising signs of a recovery. 

Afterpay US recently announced that it has passed 5 million active customers. 

Not all easy for the Afterpay share price

I fear that investors may be thinking that Afterpay is unstoppable now. It’s true that the buy now, pay later business has revolutionised how people pay in instalments (for no cost). But plenty of competition don’t want Afterpay to have all the limelight.

Global ecommerce player Shopify is launching ‘Shop Pay Installments’. Shopify said that “buyers will be able to pay for purchases in four equal payments over time, with no interest or fees. Merchants will receive the full purchase amount upfront, and Shopify will collect the remaining installment payments, meaning there’s no risk to merchants. This flexible payment option will allow buyers to stretch out their payments, making purchases more convenient. This, in turn, will help merchants increase cart sizes and overall sales.” This could cause trouble for the Afterpay share price. 

At $44 I think the Afterpay share price is far too optimistic and assumes the company won’t have to reduce margins to maintain market share in the future. Even if I were interested in buying Afterpay shares, I wouldn’t remotely want to buy above $40.

More reading

• How to use ASX shares to become a millionaire
• 3 ETFs perfect for an ASX growth investor
• Here are all the ASX 200 shares that have doubled or more since the bottom of the bear market
• Is Afterpay an ASX blue chip of tomorrow?
• Why Aristocrat Leisure, Afterpay, Corporate Travel, and Sydney Airport are pushing higher

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is the Afterpay share price a buy at $44? appeared first on Motley Fool Australia.

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