How I’d use a stock market correction to retire early

Our writer thinks a market correction could help him bring forward his retirement plans. Here he explains why and how.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

sdf

When share prices go down – as they inevitably do from time to time – a lot of investors make what I think is a big mistake. They worry about the harm the falls might do to their retirement planning at exactly the moment they could be seizing an opportunity to retire sooner. Here is how I would use a stock market correction to try and bring forward my retirement.

Mr Market

Investor Ben Graham suggested that people should not focus on the day-to-day pricing of shares. The stock market, he reckoned, was like someone who offered to buy or sell shares to you each day at a certain price. But, just like a salesman knocking at the door, you don’t have to buy (or sell).

A dramatic fall in the price of a stock I own just reflects how ‘Mr Market’ currently feels about it. But I can choose to do nothing and keep the shares. If I am buying shares with a long-term perspective because I think the business has good future prospects, a fall in the share price should not dramatically change my valuation of the company. Indeed, if Mr Market offers me a lower share price, that could be good news for my portfolio.

Buying cheap shares in quality companies

If I invest in a company I think has good long-term prospects, a share price fall could offer me an opportunity to buy more shares for my retirement portfolio cheaper than before. By increasing my own returns from the company’s performance compared to buying at the higher price, hopefully I could afford to retire earlier.

To illustrate this, consider investment manager M&G. At the start of this year, I already liked its business model and dividend yield of 8.7%. But last week, the M&G share price tumbled amid a stock market correction. The yield at that time rose to 10.2% — but only briefly. The company issued encouraging annual results and the share price recovered.

If I had put £10,000 into M&G shares at the start of this year, and reinvested my dividends each year, after 25 years I should have earned around £77,300 of dividends. But if I bought my shares last Monday when they yielded 10.2%, I would expect to hit that target three years earlier. The difference between 8.7% and 10.2% may sound small. But the power of long-term compounding means buying shares I already want to own in a stock market correction could help me retire years early.

Handling a stock market correction in reality

My example above presumes that M&G holds its dividend flat. Its policy is to do so, or even to increase it, but that is never guaranteed. Over decades, all manner of unforeseen problems could cause the business to cut its dividend. I also ignore the impact of any change in the M&G share price in my example and how it could decline further after I have bought it.

Still, I think the example helps illustrate how using a market correction to load up on shares I already find attractive can significantly improve my long-term returns and help bring retirement closer. I would choose a diversified portfolio of shares and be ready to act when I see quality shares on sale.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Christopher Ruane owns shares in M&G. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s a dirt-cheap FTSE 100 share to consider before it surges again!

This FTSE 100 share may have doubled in value in 2025. But as Royston Wild explains, it still looks like…

Read more »

Man thinking about artificial intelligence investing algorithms
Investing Articles

Can I buy Cathie Wood’s ARK Innovation ETF for my ISA or SIPP?

The ARK Innovation ETF is a US investment fund. Can the product be bought for an Individual Savings Account or…

Read more »

Little girl helping her Grandad plant tomatoes in a greenhouse in his garden.
Investing Articles

Lloyds shares: here’s the latest price and dividend forecasts

Harvey Jones is thrilled with the total return from his Lloyds shares. Now he examines whether they can keep serving…

Read more »

Investing Articles

Up 50% and 30% in a year! These 2 FTSE 100 dividend shares are behaving like growth stocks

When dividend shares deliver growth as well, investors are in luck. These two FTSE 100 shares are best known for…

Read more »

Middle aged businesswoman using laptop while working from home
Investing Articles

2 stocks every passive income seeker should know about

Dividend shares can be great sources of passive income. Stephen Wright likes the look of two that have fallen out…

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Dividend Shares

I asked ChatGPT for the best FTSE 250 stocks for passive income, with these results!

Jon Smith asks his AI friend for advice regarding passive income options, but doesn't agree with all the results that…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing Articles

Want to make a million from penny shares? Here’s 1 way to try

Investors wanting to build up a potential millionaire portfolio with diversified penny shares might want to consider adding this one.

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Want to turn a £20k ISA into a £1m portfolio? Here’s how

Dr James Fox explains the strategy many investors employ when trying to turn their ISA into a life-changing pot of…

Read more »