Following the 2020 market crash, some investors may feel the aim of buying stocks to retire early is unlikely to be a sound strategy. After all, stocks have displayed a significant amount of volatility. In many cases, their price levels are substantially down on where they started the year.
However, low valuations on offer across the stock market could provide buying opportunities for long-term investors. Equities have a solid track record of recovering from their very worst declines. As such, through buying a diverse range of stocks right now, you could improve your capacity to retire early.
Capital growth potential
The past performance of the stock market shows it’s outperformed many other mainstream assets over the long run. For example, its high single-digit annual returns are significantly greater than the returns of other assets, such as cash and bonds. Therefore, the stock market has historically been a sound place to invest. Especially for those is seeking to build a nest egg from which they can aim to retire early.
The downside of buying stocks is that they’re also riskier than other assets, and can display significant amounts of volatility at times. However, those periods of decline can present buying opportunities for long-term investors. They enable you to buy high-quality stocks when they offer wide margins of safety. As such, they could offer even greater returns than the market average over the long run. And that enables them to make an even more positive impact on your portfolio’s performance.
Recovery prospects
When stock prices are low, a recovery that helps you to retire early may seem to be highly unlikely. However, the stock market has a strong track record of overcoming even its most challenging periods.
For example, during those difficult periods, such as the tech bubble and the financial crisis, many investors were likely to have felt a market rebound was highly improbable. News regarding the economy was downbeat, and there were significant risks facing many companies and industries.
However, the stock market went on to post fresh record highs after those bear markets, adding to significant gains after every one of its previous bear markets. As such, while a recovery may not have seemed likely over recent months, there’s a high probability the stock market will follow its long-term path to post new record highs in the coming years.
An opportunity to retire early
Even if the stock market takes many years to recover, it can still help you to achieve your plans to retire early. Many investors have a long-term time horizon. Indeed, they’re not planning to retire over the next few years. As such, they’re likely to have sufficient time for their holdings to recover from present economic difficulties to post capital growth.
Therefore, through buying strong businesses today at bargain prices and holding them for the long run, you can benefit from the stock market’s growth potential. This strategy could increase the size of your nest egg, and allow you to retire early.
