In my opinion, ASX growth shares might be the best way to make good money from the share market over the long-term.
Not every growth share is going to be a good investment.
Some businesses will seem like they have a lot of potential but never deliver on that.
Other ASX growth shares might deliver good profit growth but be priced for amazing profit growth and therefore disappoint the market, leading to poor returns.
But when you find the right shares for the long-term it can lead to some really impressive results.
Here’s why ASX growth shares appeal to me:
Compound profit growth
It’s hard to fully comprehend how powerful compounding can be. If a business makes $100 profit and in the next year grows profit by 20% we know the profit would be $120. But if if grew it by 20% every year for a decade then it’s much harder to envisage how much the number becomes. It’s $619.
Plenty of businesses have been growing profit at a strong rate for many years such as Alphabet (Google), Apple and Microsoft. Businesses inevitably become very large, and make good returns, if they can keep growing revenue or profit strongly.
On the ASX you can see shares like CSL Limited (ASX: CSL) and Xero Limited (ASX: XRO) that have generated strong growth for many years and turned into very large businesses.
Re-investing at a high rate of return
The best businesses are able to put money to work at very high rates of return.
A business like Microsoft, Visa or REA Group Limited (ASX: REA) could easily decide to pay out 100% of profit out as a dividend. But instead, they can put that money back into buying new assets, developing a new service, hiring more talent or simply strengthening the balance sheet, which is a much better use of money for shareholders over the longer term.
Good dividend growth?
Most businesses that are classified as growth shares don’t have much of a dividend yield.
But, if they do pay a dividend then, over time, they could pay shareholders a very attractive amount of dividends. It gets back to the strength of compounding.
If a business started off paying a dividend of $1 per share and grew that dividend by 10% a year then after less than 8 years the dividend would be about double (around $2) compared to what it was at the start.
ASX growth share ideas
Some of the ASX growth shares that I like right now are largely in the tech space such as Pushpay Holdings Ltd (ASX: PPH), Kogan.com Ltd (ASX: KGN) and Redbubble Ltd (ASX: RBL). I also like the LICs called MFF Capital Investments Ltd (ASX: MFF) and WCM Global Growth Ltd (ASX: WQG).
