Investors can build great wealth by investing a relatively small amount regularly. In fact, allocating just $10 a day to our ASX share portfolios could do wonders over the long term.
The power of compound interest can deliver a lot of the wealth-building power that we’re looking for.
The famous scientist Albert Einstein once said this about compound interest:
Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.
The stronger the compound interest, and the longer we feed it, the more its financial snowballing can build our wealth rather than us having to contribute most of the money ourselves.
Saving $10 a day
The first part of the wealth-building plan is to put some money aside in a high-interest savings account. Granted, it might be a bit tricky for some households to do any saving during this period of inflation and high interest rates.
But $10 a day could be a decent savings target and, hopefully, prospective investors can put (at least) that amount of money aside. Building wealth can start by investing just $500 with most Australian brokers, although it could make sense to build up to around $1,000 to invest each time because that could save on brokerage.
Compounding with ASX shares
Over previous decades, the ASX share market has returned an average of between 9% to 10% per annum, depending on the time period we look at.
If we use the $10 per day figure with a compound interest calculator and it earns an average return of 10% per year, over 10 years, it would grow to $58,172, with $36,500 of that coming from our regular deposits.
After 15 years, these numbers would grow the portfolio value to $116,000, with $10 per day amounting to a total of $54,750 in our own deposits.
In 20 years, the portfolio could grow to a total of $209,000, with $73,000 of that coming from our deposits of $10 per day.
After 30 years, the wealth could reach $600,000, with our regular deposits amounting to $109,500.
Finally, after 40 years, the portfolio value could rise to $1.6 million from just a total of $146,000 of our own money.
Putting this into context, a 20-year-old Aussie could put just $10 a day aside and reach these numbers by the time they’re 60 years old.
It’s up to each investor to decide which investments they go with, but the globally-diversified exchange-traded fund (ETF) Vanguard MSCI Index International Shares ETF (ASX: VGS) could be a good place to start.
Foolish takeaway
Don’t forget, we’re talking about $10 per day throughout the entire journey. If someone starts savings at $10 per day but then increases the amount to $15 per day or $20 per day, then we could be talking about the portfolio being valued at more than $2 million after 40 years — or even more.
