SIPP SIPP hooray! How I’d invest £8,900 today to try and retire early

Could the right approach to investing a SIPP now help our writer retire early? He thinks so. Here’s the approach he’d take to try and achieve that goal.

| More on:

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.

A senior group of friends enjoying rowing on the River Derwent

Image source: Getty Images

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.

A Self-Invested Personal Pension (SIPP) is exactly what it sounds like. Retirement (and therefore pensions) can seem like a distant concern for many people. But it gets closer every day.

Indeed, with the right approach, I think I could bring it even closer and retire early by using a SIPP to boost my income streams.

Earning passive income

Imagine I had £8,900 to invest. Maybe I could put it to work in a portfolio of companies that see the phenomenal sort of share price growth once seen at businesses like Amazon and Tesla. That is possible.

Most investors though, would be doing well to have one such incredible growth share among their SIPP holdings, let alone a few.

Still, imagine a more modest performance. For example, imagine that I could compound the value of my SIPP by 12% annually, whether through share price growth, dividends, or a combination of both.

That would give me a SIPP worth almost £86,000 after 20 years, over £151,000 after 25 years – and over a quarter of a million pounds after three decades.

I could use that to generate passive income in the form of dividends, allowing me to retire early.

Getting the right shares at the right price

In theory, that sounds all well and good. In practice though, achieving a 12% compounded annual return over the course of decades is far from easy.

There may be good years, but there could be very bad ones (or even bad decades).

On top of that, a lot of investors underestimate the impact risky shares can have on their portfolio over the long term. Some brilliant performers can be effectively cancelled out when it comes to their impact on total return if there are enough duds in the portfolio.

So I would take time and make effort to find brilliant shares at attractive prices that I could buy for my SIPP.

Looking for quality on sale

As an example, consider a share I would be happy to buy for my SIPP at the right price: Cranswick (LSE: CWK).

The food producer might not be a household name, although its products are sold in shops across the country. Over the past five years, its share price has moved up by 57%. On top of that, the company has raised its dividend annually for decades. The shares currently yield around 2%.

Food production is a competitive business and profit margins can be slim. So risks like ingredient and wage inflation pose a risk to profitability at the FTSE 250 sandwich maker.

But Cranswick highlights that strong returns can be found not only in racy, fast-growing business sectors but also in workaday businesses that over the course of time have honed their commercial model.

Putting all our eggs in one basket is the sort of risk I was talking about above, so when investing my SIPP I always aim to keep it diversified.

By following simple principles of smart investment like that, while hunting for great businesses at good prices, I think even a fairly modest SIPP today could potentially help me retire early in future.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Tesla. 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

Dividend Shares

£3k in savings? Investors could consider putting it here for juicy second income

Jon Smith talks through how investors could buy dividend stocks with yield potential in excess of 6.5% for second income

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

Why the boohoo share price soared by almost 14% in November

Is troubled online fashion retailer boohoo beginning a turnaround that may cause the share price to rocket through 2025 and…

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

Here’s how saving £5.40 a day could net me £1,971 yearly passive income for life

The price of a cup of coffee seems to have broken the £5 mark. Is it time to put that…

Read more »

Investing Articles

2 top FTSE 100 stocks surging to record highs (hint — not Rolls-Royce)!

Ben McPoland takes a closer look at a pair of high-performing FTSE 100 stocks that continue to enrich long-term shareholders.

Read more »

Investing Articles

A cheap FTSE 100 share to consider buying for the next 10 years!

This FTSE 100 share has pride of place in my portfolio. Here's why I think it could be a top…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Down 44% in 2 months! Is this FTSE 250 green energy pioneer priced too cheaply?

After a sharp tumble in recent months, this FTSE 250 company with a growing order book is almost 90% below…

Read more »

Investing Articles

Investing a £20k Stocks and Shares ISA in this high-yielder might give me a £2,000 annual income

Harvey Jones is now wondering whether to pour his entire Stocks and Shares ISA allowance into a single FTSE 100…

Read more »

Investing Articles

Saving £20k in an ISA? Here’s how I’m aiming to turn that into a stunning £2,035 monthly passive income

Harvey Jones is keen to build a high and rising passive income by investing in a balanced spread of top…

Read more »