If you want to grow your wealth in the share market, then investing in quality companies is always a good idea.

After all, the cream always rises to the top.

With that in mind, it could pay to listen to what one of Australia’s leading investment companies is saying about an ASX tech stock.

Blackwattle Investment Partners has described this stock as “one the highest quality companies on the ASX.”

Which ASX tech stock?

The stock in question is cloud accounting platform provider Xero Ltd (ASX: XRO).

According to the Blackwattle Mid Cap Quality fund, its strong recent performance has been underpinned partly by Xero’s high-flying shares.

As at the end of May, the fund was up 16.95% over the past six months. This compares to 11.45% for its benchmark, which means a 5.5% outperformance.

Commenting on the ASX tech stock, the investment company said:

Xero was the largest positive contributor to performance during the month. XRO rose 11% in May, on the back of a very strong FY24 result and solid outlook. XRO is a market-leading, global accounting SaaS platform. XRO’s FY24 result showcased the benefits of the cultural change brought in by CEO Sukhinder Singh-Cassidy in early 2023, balancing top-line growth with profitability. XRO delivered a record EBITDA margin of 31% and free cash flow growth of over 280%, significantly beating market expectations.

The good news is that Blackwattle still sees plenty of upside for Xero despite this outperformance. It adds:

This result has cemented our view of XRO being one the highest quality companies on the ASX. We continue to see significant upside for XRO, as they continue their journey to being the market-leading, global accounting software for SMEs, while delivering strong financial metrics.

Is anyone else bullish?

Blackwattle isn’t alone with its bullish view on this ASX tech stock.

Goldman Sachs is very bullish on the company and currently has a conviction buy rating and $164.00 price target on its shares. It said:

We see Xero as very well-placed to take advantage of the digitisation of SMBs globally, driven by compelling efficiency benefits and regulatory tailwinds, with >100mn SMBs worldwide representing a >NZ$100bn TAM. Given the company’s pivot to profitable growth and corresponding faster earnings ramp, we see an attractive entry point into a global growth story with Xero our preferred large-cap technology name in ANZ – the stock is Buy rated.

The post This tech stock is ‘one the highest quality companies on the ASX’ appeared first on The Motley Fool Australia.

More reading

• 2 ASX 200 compounding machines to buy and hold forever
• 7 excellent ASX growth shares to buy next week
• What are the best ASX shares to buy with $500 in 2024?
• 3 explosive ASX tech stocks to buy and hold forever
• Why Xero could be one the best shares to buy in the Asia-Pacific

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

Race Oncology Ltd (ASX: RAC) shares burst out of the gates on Wednesday morning.

In early trade, the ASX healthcare stock was up as much as 15% to $1.96.

The clinical stage biopharmaceutical company’s shares have eased back a touch since then. At the time of writing, they are up 7% to $1.83.

Why is this ASX healthcare stock surging?

The catalyst for this strong gain has been the release of a positive announcement relating to its RC220 bisantrene formulation.

The company is advancing RC220 to address the high unmet needs of patients across multiple oncology indications.

In October, Race Oncology contracted Attentive Science and Agilex Biolabs to undertake the regulatory-standard Good Laboratory Practice (GLP) non-clinical toxicology and safety pharmacology studies required to advance RC220 bisantrene into human clinical trials.

These studies aimed to demonstrate in two animal species that RC220 bisantrene is safe and amenable to administration via peripheral IV infusion in humans. In addition, they aimed to establish an acceptable starting dose for Phase I clinical studies.

According to the release, this GLP program has been delivered on time and on-budget.

More importantly, the GLP toxicology and safety pharmacology studies showed no unexpected or unacceptable toxicities. As a result, management notes that the completed data package supports the use of RC220 bisantrene in human clinical trials.

The company advised that three doses of RC220 bisantrene were administered via peripheral veins. These were low, medium and high doses, which reflect the expected dose-range in humans. Pleasingly, these doses showed similar systemic effects to those seen when using the historical bisantrene formulation administered via a central line.

Examination of the animals after a four-week post-dose recovery period showed that all observed toxicities were reversible. Importantly, there were no formulation-specific adverse macroscopic or histological findings at the sites of infusion.

What now?

Data from these studies will be used to support regulatory and ethics submissions for evaluation of RC220 bisantrene in human clinical trials. This includes the upcoming Phase 1a/1b trial in Australia, Hong Kong, and South Korea, an investigator-sponsored Phase 1/2 AML trial, and a US FDA Investigational New Drug (IND) application in 2025.

The ASX healthcare stock’s CEO, Dr Daniel Tillett, described the news as “another major milestone” for the company. He commented:

Receiving clear confirmation of the safety of RC220 bisantrene in these studies and identifying a suitable starting dose for our upcoming trial is another major milestone in bringing our new drug product to cancer patients. I congratulate and thank the Race preclinical team, Attentive Science and Agilex Biolabs for completing these studies on time and on-budget.

Following today’s gain, Race Oncology’s shares are now up approximately 115% since the start of the year.

The post Guess which ASX healthcare stock is surging 15% on a ‘major milestone’ appeared first on The Motley Fool Australia.

More reading

• 3 ASX healthcare shares smashing new 52-week highs today
• Why Capitol Health, Infratil, Newmont, and Race Oncology shares are charging higher
• ASX healthcare stock surges 11% on ‘incredibly valuable’ FDA news
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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.

The S&P/ASX 200 Index (ASX: XJO) is down 0.7% in early trade, with ASX 200 uranium stock Boss Energy Ltd (ASX: BOE) suffering heavier losses.

Shares in the Aussie uranium producer closed yesterday trading for $3.98. In morning trade on Wednesday, shares are changing hands for $3.84 apiece, down 3.8%.

Boss Energy isn’t alone in underperforming the benchmark today, with most ASX uranium shares deep in the red this morning.

And Boss is sliding despite the miner releasing promising drill results from its South Australian satellite project.

ASX 200 uranium stock tumbles despite promising drill results

Investors are bidding down the ASX 200 uranium stock today despite the company’s reporting on high-grade drill results at its Gould’s Dam satellite deposit.

Gould’s Dam is located 80km from the company’s flagship Honeymoon Uranium Mine. The project currently contains a JORC-compliant resource of 25 million pounds (Mlbs) of indicated and inferred U308.

The ASX 200 uranium stock’s management highlighted that the drill results showed “the potential for Gould’s Dam to help lift Honeymoon’s production rate from the current nameplate capacity of 2.45M lbs a year to the export permit limit of 3.3M lbs a year and/or extend the mine’s useful life”.

The latest drilling campaign is targeting three areas within the inferred resource envelope at Gould’s Dam – Sunrise, Billeroo and Beulah.

Infill and step-out drilling at the Sunrise and Billeroo targets is almost complete. To date, 96 mud rotary holes have been drilled for 12,911 metres.

Uranium mineralisation highlights include:

• 4.00m @ 2,925ppm pU3O8
• 3.25m @ 2,230ppm pU3O8
• 3.25m @ 1,406ppm pU3O8

The ASX 200 uranium stock said the exploratory program would assist it with wellfield planning and other pre-development work. Work has already commenced on accelerating the development of Gould’s Dam.

Ongoing exploration will now focus on the Beulah satellite deposit, where Boss Energy plans to drill 40 holes to better define the region’s mineralisation and geological characteristics.

It will also enable Boss to complete detailed geological and mineralisation models to support the development work and preparation for an ISR Mining Lease proposal for Gould’s Dam.

According to the release:

This will lead into the next phase of mine plan development, including pump testing of the mineralised aquifer within the Gould’s Dam Indicated resource (utilising monitoring wells installed during the 2023 drilling campaign) and core sample test work.

The global Honeymoon Mineral Resource stands at 71.6Mlbs (52.4Mt) with an average grade of 620ppm U308, using a cut-off grade of 250ppm.

Boss Energy share price snapshot

Amid growing global nuclear power generation plans, the Boss Energy share price has increased 22% over the past 12 months.

The ASX 200 uranium stock has lost ground over the past month, though, which sees shares now down 10% in 2024.

The post ASX 200 uranium stock tumbles despite significant new production potential appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben 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.

There are many exchange-traded funds (ETFs) on the ASX. Dozens and dozens, in fact. And many of them I would consider to be smart investments in June 2024. So picking the smartest ASX ETF to buy with $1,000 right now isn’t the easiest choice.

In my view, you can never go wrong with a simple index fund like the Vanguard Australian Shares Index ETF (ASX: VAS) or the iShares S&P 500 ETF (ASX: IVV).

I’ve also written extensively about my love of the VanEck Vectors Wide Moat ETF (ASX: MOAT), and I would happily recommend that fund to any investor who wants to aim for market-beating returns from here.

But after much thought, I would consider the BetaShares Global Cybersecurity ETF (ASX: HACK) the smartest ASX ETF to put $1,000 into right now.

Why? Well, there are two reasons.

Why is HACK the best ASX ETF to put $1,000 in today?

The first is this ETF’s nature.

As its name (and ticker code) suggests, this ETF invests in a portfolio of global companies that are all movers and shakers in the cybersecurity industry. Some of the fund’s top holdings include CrowdStrike Holdings, Broadcom, Palo Alto Networks and Zscaler.

This is arguably one of the most important industries in the world right now. In our modern world, every individual, business and government holds sensitive data that they need to protect from prying eyes.

When these data stores are breached, it can have catastrophic impacts on our personal lives and finances, for one. But when we are talking about a business or a government, the potential impacts can be catastrophic. Just ask Optus or Medibank Private Ltd (ASX: MPL).

Global cybersecurity threats will only increase as the world becomes ever more connected. As such, it is reasonable to assume that individuals, businesses, and governments will increasingly be prepared to spend top dollar to prevent these embarrassing and potentially disastrous data breaches.

If realised, this trend stands to benefit every single company in the ASX’s Betashares Global Cybersecurity ETF.

The numbers don’t lie

Secondly, there’s past performance to consider with this ASX ETF. We should never base a potential investment decision on its past performance, or assume that performance will simply continue into the future.

However, I believe that, in this case, the HACK ETF’s track record vindicates the growth trajectory of the cybersecurity sector that we just discussed.

As of 31 May, the Betashares Global Cybersecurity ETF has returned 18.23% over the past 12 months. That becomes an average of 12.13% per annum over the past three years, and stretches to 16.09% per annum over the past five.

Since this ASX ETF’s inception in August 2016, investors have bagged an average of 16.49% per annum.

Putting all of these factors together, I think that this ASX ETF is the smartest place to put $1,000 into this June and beyond.

The post The smartest ASX ETF to buy with $1,000 right now appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in VanEck Morningstar Wide Moat ETF and Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Global Cybersecurity ETF, CrowdStrike, Palo Alto Networks, Zscaler, and iShares S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Broadcom. The Motley Fool Australia has positions in and has recommended BetaShares Global Cybersecurity ETF. The Motley Fool Australia has recommended CrowdStrike, VanEck Morningstar Wide Moat ETF, and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

BHP Group Ltd (ASX: BHP) shares are falling on Wednesday morning.

At the time of writing, the mining giant’s shares are down over 1% to $42.85.

Why are BHP shares falling?

Today’s decline may have been driven by the release of the company’s decarbonisation update this morning.

According to the release, the Big Australian is on track to reduce its operational greenhouse gas (GHG) emissions (Scopes 1 and 2 from operated assets) by at least 30% by FY 2030 from FY 2020 levels.

But management isn’t resting on its laurels. It has a goal to achieve net zero operational GHG emissions by 2050.

It acknowledges that to succeed, its technology must advance rapidly. It also highlights that “the pathway to net zero will be non-linear” as it organically grows its business, and it is using its capital allocation framework to maximise the returns on its GHG emissions abatement.

To support its long-term goal of net zero Scope 3 emissions by 2050, management notes that it has made strong progress on its strategy in the areas of steelmaking and maritime decarbonisation via partnerships, trials, and pilots.

What’s been happening?

Management points out that its haul trucks are the largest user of diesel at BHP globally.

Its preferred pathway to eliminate diesel is via electrification. BHP feels that operational trials and collaborations to accelerate development are critical to success. The good news is that it is working with a number of major players such as Caterpillar Inc. (NYSE: CAT) and Komatsu to make this a reality.

A trial with Caterpillar starts this year and with Komatsu in 2026. If everything goes to plan, these technologies will then be deployed in 2028.

The Big Australian is also collaborating with steelmakers to reduce GHG emissions in steelmaking. It notes that it has nine partnerships, representing ~20% of global steel production, to help tackle long-term steel transition through the decades to come. Management said:

We are progressing a diverse project portfolio to larger scale; covering routes we believe have greatest potential to support decarbonisation from use of our products.

One way to achieve this could be with its electric smelting pilot facility. A pilot plant is targeted for 2027 with widespread commercial deployment targeted post-2030.

Another area the mining giant is targeting is shipping. It has a 2030 goal of a 40% emission intensity reduction of BHP-chartered shipping of BHP products from a 2008 baseline. After which, it is aiming for net zero for the GHG emissions from all shipping of BHP products by 2050. It commented:

We see significant potential in the trial and adoption of low to zero-emissions alternatives such as ammonia. A promising future fuel with potential to drive a step change reduction in GHG emissions on a per voyage basis compared to conventional fuel.

It’s fair to say that this is promising from BHP. However, one thing missing from the presentation is how much this all will cost. This uncertainty may be what is weighing on BHP shares today.

The post BHP shares fall on decarbonisation update appeared first on The Motley Fool Australia.

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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.

It certainly has been a tough week for the Cettire Ltd (ASX: CTT) share price.

Since the start of the week, the ASX tech stock has lost over 50% of its value.

Why has this ASX tech stock been sold off?

Investors have been selling off the online luxury products retailer’s shares in response to the release of a trading update.

Cettire warned that “the operating environment within global online luxury has become more challenging” with heightened levels of discounting.

In response to these difficult operating conditions, management “has selectively participated in the promotional activity, leading to an increase in marketing costs relative to sales and a decline in delivered margin percentage.”

This appears to have spooked investors, who may now believe that this marks an end of the ASX tech stock’s explosive sales and earnings growth.

Broker says buy the selloff

Analysts at Bell Potter were not overly impressed with Cettire’s trading update. Commenting on the update, the broker said:

Cettire (CTT) provided a FY24 trading update (Apr-Jun) and sales revenue of $735m745m (FY +78% on pcp and 4Q +54% on pcp) was broadly in line with BPe, however Adjusted EBITDA of $32-35m was a material miss to BPe/Consensus ($44m). We note that the current trading in the seasonally key 4Q has been impacted by the intense promo environment during the Northern Hemisphere Spring/Summer ’24 sales period from mid-May leading to challenging product margin outcomes (BPe ~32% for 2H24). The direct platform in mainland China was also launched ahead of the end of 4Q24.

While our topline assumptions remain largely unchanged, we see continuing pressure on 1H25 product margins in achieving a BPe ~26% net revenue growth for FY25e until the industry stock levels and promo intensity normalise over the coming months. We believe that the timing of recovery would be dependant on the ongoing industry consolidation at present given the exit of some players and overall consumer demand.

However, the broker appears to see the selloff that ensued as an overreaction.

Major upside potential

In response, Bell Potter has reaffirmed its buy rating but cut its price target by 35% to $2.60 (from $4.00).

Despite this valuation cut, it still suggests that the ASX tech stock could more than double in value from its current share price of $1.12.

Its analysts conclude:

Our PT decreases 35% to A$2.60 (prev. A$4.00) driven by our earnings revisions and a reduction to our target multiple (12x vs prev. 13.5x). Despite a weak trading update, CTT continues to perform relatively better than peers in the luxury industry and we believe that CTT’s ability to outperform far outweighs luxury e-comm peers. While the market consolidation continues across large to smaller players, CTT’s sub-1% market share and flexibility in the drop-ship inventory model highly supports growth. At our downgraded PT of $2.60, the TER is >100% so we maintain our BUY rating.

The post This smashed up ASX tech stock could rebound 100%+! appeared first on The Motley Fool Australia.

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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 recommended Cettire. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Legendary investor Peter Lynch wrote in his 1989 book One Up on Wall Street that the price-to-earning (P/E) ratio of any company that’s fairly priced will equal its growth rate.

To calculate the PEG ratio, you divide the P/E ratio by the earnings growth rate. For example, if a company has a P/E ratio of 20 and an expected earnings growth rate of 10% per year, the PEG ratio would be 2.

Peter Lynch’s statement implies that for a growth stock with an expected annual earnings growth of 20%, investors should ideally not pay more than a P/E ratio of 20.

This is a fairly conservative metric to apply. Let’s take some examples of ASX growth shares using FY25 P/E ratios and their earnings-per-share (EPS) estimates for two years from FY24 by S&P Capital IQ:

• Pro Medicus Limited (ASX: PME) shares are trading at a P/E of 140x for a two-year EPS compound annual growth rate (CAGR) of 30%
• Lovisa Holdings Ltd (ASX: LOV) shares are trading at a P/E of 32x for a two-year EPS CAGR of 26%
• Netwealth Group Ltd (ASX: NWL) shares are trading at a P/E of 50x for a two-year EPS CAGR of 22%.

Using these numbers, the PEG ratios for Pro Medicus, Lovisa, and Netwealth would be 4.7x, 1.2x, and 2.3x, respectively.

Of course, this is not to say the above ASX growth shares will stop rising. They may continue rising, especially if they exceed market expectations through faster market penetration or cost savings. Some investors might prefer high-growth companies over cheap multiples.

With that said, the PEG ratio is a useful tool for finding undervalued stocks relative to their expected growth.

So, let’s explore two ASX shares trading at below 1x PEG ratio today.

Collins Foods Ltd (ASX: CKF)

Down 18% from the beginning of 2024, KFC operator Collins Foods appears to be in the value zone.

The consensus earnings estimates by S&P Capital IQ imply the company’s EPS will increase from 51 cents in FY24 to 74 cents in FY26 at a two-year CAGR of 20%.

Collins Foods shares are currently trading at an FY25 PE of 15x, giving us a PEG ratio of 0.7x.

Yesterday, the company reported strong results for FY24, with its revenue rising 10.4% to $1,489 million, excluding divested Sizzler Asia, and underlying earnings before interest and tax (EBIT) up 15% to $124.1 million. The robust results were driven by continued strength in the KFC Europe business.

The Collins Foods share price closed on Tuesday at $10.00.

Corporate Travel Management Ltd (ASX: CTD)

As its name suggests, Corporate Travel Management is a global provider of innovative and cost-effective travel solutions for corporate clients.

Corporate Travel Management shares have dropped 23% over the past year, putting its forward P/E ratio at just 14x. This is fairly low, considering its P/E ratio was 11.5x in March 2020 at the height of the COVID-19 pandemic.

Based on estimates by S&P Capital IQ, the market predicts its EPS will grow from 86 cents in FY24 to $1.13 in FY26. This implies a two-year CAGR of 15% and a PEG ratio of 0.9x.

Now, as my colleague Bernd highlighted, ASX 200 travel shares are experiencing some headwinds from fuel costs. While airlines would take a direct hit from the fuel charges, higher ticket prices can impact travel demand.

On the flip side, these ASX travel shares, including Corporate Travel Management, can benefit from the government’s cost-of-living relief measures, as Bernd added.

If analysts’ current EPS estimates are accurate, Corporate Travel Management shares appear cheap based on the PEG ratio.

Corporate Travel Management shares closed on Tuesday trading at $13.72.

The post 2 ASX shares that would pass Peter Lynch’s favourite valuation metric appeared first on The Motley Fool Australia.

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Motley Fool contributor Kate Lee 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 Corporate Travel Management, Lovisa, Netwealth Group, and Pro Medicus. The Motley Fool Australia has positions in and has recommended Corporate Travel Management and Netwealth Group. The Motley Fool Australia has recommended Collins Foods, Lovisa, and Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Looking for some high-quality real estate investment trusts (REITs) to consider that may be too cheap to ignore right now?

Why? Every six months, an ASX REIT informs the market of its portfolio’s underlying value. This value may not be exactly what the business would get if all the properties were sold. But it’s an indication.

Imminent interest rate cuts (hopefully) could encourage the market to buy at a share price closer to the underlying net asset value (NAV). And higher share prices would push down potential distribution yields.

Having said all that, the two below are my favourite REITs right now:

Rural Funds Group (ASX: RFF)

Rural Funds owns a portfolio of farmland in different Australian states and climactic conditions. It invests in various sectors, including cattle, vineyards, almonds, macadamias, and cropping.

In December 2023, the business reported an adjusted NAV of $3.07 per unit, as it benefited from independently revalued assets. At the current Rural Funds share price, it’s valued at a 31% discount to the December NAV. That is a significant discount.

The ASX REIT is benefiting from revenue growth with steady rental growth at its farms. Some farms have a fixed annual rental increase, typically 2.5%, while other farms’ rental income growth is linked to inflation.

At the current Rural Funds share price of $2.11, it has an FY24 distribution yield of 5.5%. I think that is a good starting point.

Centuria Industrial REIT (ASX: CIP)

This ASX REIT owns a portfolio of industrial properties spread across various metropolitan markets.

Industrial property is in high demand as companies look to meet growing online shopping volume and onshore more of the supply chain. Land to build new distribution centres in our major cities is limited.  

In the FY24 third quarter update, Centuria Industrial REIT advised it had seen releasing spreads of 50% in FY24 to date. That means it’s achieving 50% higher rents on new leases compared to the old lease for the same property. It’s a huge increase, and this can drive rental profits and distributions higher in the foreseeable future.

At 31 December 2023, the business had $3.89 of net tangible assets (NTA) per unit. The current Centuria Industrial REIT share price of $3.17 is at a discount of 18% to this, which looks very appealing to me.

According to the ASX REIT’s fund manager Grant Nichols, the expected population expansion to 2025 is predicted to lead to an increase of Australian industrial demand by around 4.5 million square metres.

At the current share price, Centuria Industrial REIT has an FY24 distribution yield of 5%.

The post 2 top ASX REITs to buy before yields fall alongside interest rates appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Rural Funds Group. 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 positions in and has recommended Rural Funds Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Investing in ASX shares can be a truly rewarding experience in every sense of the word. But many investors avoid the stock market due to the perception of it being a risky place to keep their money.

While this is true to a certain extent, the reality is that if you invest prudently, the chances of obtaining a compelling rate of return on your money are a lot higher than you losing your hard-earned dollars.

Today, we’re going to prove this concept out by looking at what kind of return an investor can expect by ploughing $200 a month into ASX shares.

Assigning an absolute rate of return from the share market is a tricky task. Obviously, each stock portfolio is different. If an investor owns Commonwealth Bank of Australia (ASX: CBA), BHP Ltd (ASX: BHP) and CSL Ltd (ASX: CSL) shares, they are going to have a completely different experience than someone who buys Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW) and Xero Ltd (ASX: XRO) shares.

To get around this problem, let’s look at the returns one can expect from an ASX index fund. Index funds are popular investments on the Australian stock market. They allow investors to own a vast swathe of ASX shares in one single investment.

Your typical ASX index fund will hold either the largest 200 or 300 shares on the Australian markets, weighted towards market capitalisation (company size).

In this way, an ASX index fund will give you something akin to an average return of the entire ASX. As such, it’s a great investment to analyse if you’re wondering what the average return from the Australian stock market might be.

What kind of returns can one expect from ASX shares?

The Vanguard Australian Shares Index ETF (ASX: VAS) is an exchange-traded fund (ETF) that also happens to be the most popular index fund on the ASX. It tracks the S&P/ASX 300 Index (ASX: XKO), which means it gives its investors diversified exposure to the largest 300 individual stocks on our share market, including the six named above.

So what kind of returns can we expect from this ETF? Well, We should never use past performances as an oracle of future returns. However, this index fund has returned an average of 8.98% per annum (as of 31 May) since its ASX inception in May 2009. That 8.98% consists of both capital gains and dividend returns.

Let’s assume VAS continues to appreciate at this rate for argument’s sake. If one invests $200 every month into this index fund, it will build up to a portfolio worth $15,390 after five years of investing. That would grow to $39.148 after ten years and to $134,486 after 20 years.

If someone kept up this simple habit over a 40-year working lifetime, they would be left with a nest egg of $937,881.

If that investor managed to increase their monthly contribution to $300, they would be looking at a 40-year balance of roughly $1.41 million. That’s more than enough for a comfortable retirement, even if we don’t account for superannuation.

This exercise just goes to show the power of investing consistently in compounding assets.

The post What kind of return could I expect by investing $200 monthly into ASX shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in CSL, Telstra Group, and Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Xero. The Motley Fool Australia has positions in and has recommended Telstra Group and Xero. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.