A lot of people would like to retire early rather than slogging away at work for decade after decade. But simply wanting something does not make it happen. If my ambition was to bring my retirement forward, one way I could aim to make that a practical option financially would be to invest money over time in UK shares.
With a spare £120 per week, here is how I would go about that.
I think £120 is a substantial enough sum that putting it aside weekly could meaningfully help my long-term financial planning. But I also think it is realistic.
Everyone’s financial situation is different. But a key factor in investing for decades is being realistic about how much one can hopefully put to work in the stock market and trying to stick to that.
Growth and income
Imagine I have a 20-year timeframe to invest before I hope to retire early.
One approach would be to invest in what are known as growth shares. They are shares in companies I expect to grow their business significantly in years to come. An example from my own portfolio is S4 Capital.
The benefit of growth shares is that, if I buy into a company at an early stage and at an attractive price, business success could lead to a much higher share price in future. So my stake may end up being worth a lot more than I paid for it.
However, it can be hard to judge the prospects of a young firm with a limited track record. Some fail. Growth companies often reinvest any profits into building their business, so dividends are not common although some growth shares do pay them.
I could also opt to put my money into what are called income shares.
Those tend to be shares in more mature companies that pay out some or all of their profits to shareholders in the form of dividends.
Examples of income-generating UK shares from my portfolio include FTSE 100 names like British American Tobacco and Vodafone.
I could reinvest the dividends over time (something known as compounding), giving me even more money to invest while sticking to my £120 a week savings habit.
The attraction of dividends is easy to understand.
But they are never guaranteed. Some mature companies have limited opportunities to grow their businesses.
And while the shares could be lucrative for me in terms of dividends, I would often keep my expectations modest when it comes to the potential for share price growth.
With a timeframe of decades, I would comfortably be able to take a long-term approach to investing.
I would invest in some UK shares I thought had growth potential, as well as others I fancied mainly for their income potential.
If I could compound the value of my holdings annually at a rate of 10% through a combination of capital growth and dividend income, after 20 years my approach would give me a portfolio worth £370,000. Of course, I could see less than a 10% return, but I could see more too.
That ought to let me bring forward my retirement.