While there are a number of sound ideas on how you can improve your chances of retiring early, the reality is that many investors have the best intentions but are held back by common mistakes. As a result, they hurt their chances of retiring early to a large degree.
With that in mind, here are three common errors which, if avoided, could help you to live a comfortable retirement earlier than you may have expected.
Buying the wrong assets
While it is nearly a decade since the financial crisis was in full swing, a large number of people still regard investing in shares as being too risky. Certainly, losses can be made due to a variety of factors. For example, a company’s management team may make the wrong decisions, the wider industry could experience a challenging period, or a wider economic downturn could set in.
However, to avoid shares and instead focus on seemingly less risky assets such as cash and bonds could push retirement further away, rather than bring it closer. History shows that shares outperform most other major asset categories over the long-term. As such, investing in shares and avoiding the temptation to take what seems to be a less risky option could be a worthwhile move in the long run.
Raiding a pension pot
With the increasing popularity of ISAs in recent years, it has become easier to raid savings that are supposed to be for retirement. While pensions may offer less flexibility than ISAs, they also limit the ability to withdraw funds for other endeavours, such as buying a house or a car.
While it is always a sensible idea to keep some cash in an accessible account, for many people it may be a good idea to utilise a plain vanilla pension plan. Not only does it provide tax benefits, it means that there is no temptation to withdraw funds in the short run. This could lead to an improved long-term outlook when it comes to an individual’s retirement prospects.
Short-term thinking
For most people investing for retirement, the eventual date when work ends is likely to be many years away. As a result, focusing on what could be the best-performing shares in the next couple of years may not be the most logical strategy to employ.
Certainly, if a company’s share price rises in the short run then that is a great result for any investor. But it could be worth focusing on where the economy or a specific industry could be in a decade or more when deciding where to invest.
For example, the tobacco industry may be experiencing a decline in cigarette volumes at present, but the growth potential of next-generation products in future years could be significant. Similarly, healthcare stocks could be the most sought-after growth plays in the long run as the world population grows and ages.
By thinking which stocks could deliver outperformance in the long run, it may be possible to generate higher returns than the wider index. Doing so in preference to short-termist, popular stocks could help to bring retirement a step closer.
