Feb 7, 2023

Long-term share market growth could power investor returns higher. Tristan Harrison has been a contributor to The Motley Fool since October 2016. He has an advanced diploma from the Association of Accounting Technicians (UK) and is currently studying to be a Chartered Institute Management Accountant. Tristan's goal is to help Australians learn about the great businesses listed on the ASX that will help grow their portfolio, wealth and confidence about investments over the long term. He's a keen tennis fan and can't wait for the next Australian Open to roll around. Latest posts by Tristan Harrison ( see all ) Image source: Getty Images You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More Key points Bank profitability is improving in the short term with higher interest rates I think the ASX 200 can also keep rising in the long term, which should help drive returns The S&P/ASX 200 Index (ASX: XJO) has done very well over the last few months, rising 16% since the end of September 2022. Investor confidence seems to have come soaring back. Back in August 2021, the ASX 200 Index reached a peak of just over 7,630 points. For investors who haven’t noticed, the ASX 200 reached 7,588 points earlier this month, which is less than 1% lower than its all-time high. The ASX 200 is dominated by a few ASX shares from two sectors – ASX bank shares and ASX mining shares . When BHP Group Ltd ( ASX: BHP ), Commonwealth Bank of Australia ( ASX: CBA ), National Australia Bank Ltd ( ASX: NAB ), Westpac Banking Corp ( ASX: WBC ), and ANZ Group Holdings Ltd ( ASX: ANZ ) do well, then it bodes well for the ASX 200 as a whole. What’s driving the ASX share market higher? The major banks and ASX iron ore shares have gone through a good recovery. Banks have risen amid the prospect of generating higher profits because of elevated interest rates with banks passing on the interest rate hikes quickly. Share prices tend to follow earnings (and earnings projections). Investors are also getting excited by how much iron ore profit BHP, Rio Tinto Limited ( ASX: RIO ), and Fortescue Metals Group Limited ( ASX: FMG ) could make in the coming months. More profit could also mean that good dividends are headed to shareholder bank accounts. Commsec numbers suggest that CBA, NAB, Westpac, and ANZ are all going to pay a higher dividend per share than last year. Collectively, investors have sent the share prices higher of names that were thought of as being impacted by higher interest rates. These include companies such as JB Hi-Fi Limited ( ASX: JBH ), CSR Limited ( ASX: CSR ), Wesfarmers Ltd ( ASX: WES ), and Charter Hall Long WALE REIT ( ASX: CLW ). Is it too late to buy? The ASX 200 has essentially wiped out the decline seen in 2022. Certainly, over the long-term, the ASX has historically returned an average of around 9% to 10% per annum. I don’t know for certain — nor does anybody else know — what’s going to happen next in the next few months or years. Higher interest rates and inflation have made things volatile. I think there’s going to be more volatility throughout 2023. The market often acts with exuberance and, occasionally, becomes bearish . I think the ASX 200 will be able to keep rising over the coming years if earnings growth is achieved. This could enable investors to sell at a higher price if they choose, or they may simply keep holding and benefiting from compounding . For investors who invest in the whole share market with exchange-traded funds (ETFs) , I think a regular investment plan will still be very effective. For investors who focus on individual ASX shares, I believe there will always be opportunities. For now, I still think that smaller ASX shares that have been hit hard could be the best places to find mispriced ideas. Motley Fool contributor Tristan Harrison has positions in Fortescue Metals 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 Wesfarmers. The Motley Fool Australia has recommended JB Hi-Fi and Westpac Banking. The Motley Fool has a disclosure policy . This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. More on Share Market News