How I’d find shares to buy for an early retirement

Christopher Ruane explains some of the factors he considers when looking for shares to buy that could potentially help him retire early.

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Retiring early might not be for all of us – but for a lot of people, it is a longstanding dream. One approach would be building up savings in a vehicle like a Stocks and Shares ISA or SIPP, then investing in blue-chip shares. But there can be some challenges with this, including finding the right shares to buy.

Setting an objective and timeframe

The first thing I would do after setting up my ISA or SIPP would be trying to get clear at least in my own mind about what my investing objectives are. For example, do I want to maximise the value of my portfolio, so I can sell the shares when I retire and live off the capital? Or do I want to set up passive income streams that I can reinvest while I am still working, then withdraw as cash once I retire?

Another thing I think matters is setting some sort of timeframe. As with the objective, this does not need to be set in stone. It can change over time.

But at least having a target can help me figure out my initial investment strategy and needs, then adjust it as necessary along the way.

If I want to retire 10 years from now, for example, the amount I need to invest and the choices I make may be quite different to if I want to keep working for another 30 years until I retire.

In both cases, by the way, I would still start today. The long-term approach to investing shows that time can be an investor’s friend.

Choosing the right shares

How would I go about finding the right shares to buy for my own investment objectives?

I would buy a mixture of shares, to spread my risk. I would also focus carefully on risk management more widely. For example, I would not decide what shares to buy based purely on how well I thought they may do – I would seriously weigh what could go wrong too. Investing with a timeframe stretching for decades, things that can go wrong may well do so at some point.

I would look to buy likely long-term strong performers in resilient parts of the economy, at attractive share prices.

An example I would be happy owning (and indeed would buy for my SIPP if I had spare cash to invest) is Legal & General (LSE: LGEN).

The firm benefits from its strategic choice to focus on an area likely to benefit from resilient customer demand: financial services. It has a large client base already and the effort of switching providers means many clients are probably not keen to do so, which gives Legal & General pricing power.

Funding an early retirement

That can help it fund a generous dividend, with the shares currently yielding 8.2%.

I do see risks. Asset value changes can hurt earnings. Cash flows could also fall if weak returns lead to clients moving their funds to other providers.

But such strong businesses with potentially juicy dividends may give me sizeable passive income streams in coming decades. That could help fund an early retirement.           

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.

C Ruane has no position in any of the shares mentioned. 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.

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