Nobody wants to be short of funds when they retire. Well, the good news is that the Australian share market is a great place to prevent this from happening and to retire rich instead.
But how could you do this? One way is to buy and hold high-quality ASX shares for the long term.
History shows that if you do this, you have a strong probability of growing your wealth materially.
For example, according to Fidelity, the Australian share market has provided investors with an average annual return of 9.6% per annum over the last 30 years. Thatâs despite there being a number of market crashes, such as the dot.com bubble bursting, the GFC, and COVID-19, occurring during the three decades.
And while we cannot guarantee that the same will happen over the next 30 years for ASX shares, it is worth noting that these returns are in line with what has occurred historically on global share markets. For example, Wall Streetâs S&P 500 index has generated an average return of 9.9% per annum since 1965.
In light of this, it isnât farfetched to assume that the market will generate an average 9.6% per annum return over the next 30 years. So, we will base our calculations on this number.
Retiring rich with ASX shares
Based on the above, if you were to invest $10,000 into ASX shares each year and earned the market return, you would be well-placed to retire with a sizeable nest egg.
For example, doing this for a period of 20 years, you would grow your portfolio to approximately $600,000.
But thanks to the crazy power of compounding, if you can keep going just another 10 years, you would see that $600,000 grow by over a million dollars to almost $1.7 million.
At that point, if you wanted to, you could look at turning your focus to income and living off the dividends.
A portfolio valued at $1.7 million would generate annual dividends of almost $80,000 a year if you averaged a dividend yield of 4.5%. Thatâs a great income without having to lift a finger!
