The prospect of getting rich and retiring early may seem to be fading for many people. The State Pension age is set to rise, while the economic prospects for the UK economy continue to be uncertain.
However, these challenges could present an opportunity to capitalise on lower share prices, as well as focus a greater portion of your capital on the stock market. In fact, by investing through challenging market conditions, it may be possible to bring your retirement date a step closer.
Focus on shares
In previous decades, assets such as cash, property and bonds may have offered greater appeal than is the case today. In the past, they offered relatively appealing returns, as well as portfolio diversification.
While they still offer diversification benefits, the returns on cash and bonds are expected to remain low over the coming years. Interest rate forecasts suggest that the Bank of England will maintain a dovish stance on interest rates, which could mean that cash holdings fail to keep pace with inflation over the medium term. Meanwhile, bond yields are generally low at the present time – even among riskier issues.
Likewise, property returns may be reduced due to tax changes and the high prices of housing versus average incomes. This may mean that focusing on the stock market, rather than other mainstream assets, provides a higher chance of improving your long-term financial outlook.
Invest through the cycle
The world economy may experience a period of difficulty in the near term. There are various risks facing its outlook, with a global trade war and weakness in Europe being among them.
While this may mean that there is a period of decline for share prices, investing regularly through downturns can prove to be a sound move.
Not only does it enable an investor to capitalise on lower share prices for high-quality stocks, it also takes away the difficulty of attempting to call the bottom of the market. This can be a highly challenging process, since history shows that the recovery from bear markets can be surprisingly brisk. As such, investing regularly throughout periods of uncertainty may be the best overall strategy that produces opportunities for long-term growth.
Hold on to winning stocks
Just as it is tempting to sell stocks that have delivered disappointing returns, it may also seem to be a sound move to sell companies that have recorded impressive total returns. An investor may wish to crystallise their gains in order to reallocate the capital elsewhere, for example.
This may not prove to be a worthwhile move in the long run, since companies that have become increasingly popular among investors may be delivering improving financial performance and have further room to grow.
Therefore, it may be a good idea to hold on to winning shares, with investor sentiment having the potential to improve and produce an even higher return in the long run.
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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.