The State Pension age is set to rise to 67 within the next decade. However, further increases seem likely at a time when public finances are under pressure and life expectancy is rising. As such, it would be unsurprising for many people currently of working age to have to wait until they are aged 70 or more to receive the State Pension.
Therefore, it may be worth accumulating capital each month and investing it in a range of shares. By focusing on fundamentally sound businesses with strong growth prospects while they trade at low valuations, it may be possible to retire early.
Investing in shares
While many people save money each month, far fewer invest their hard-earned cash in the stock market. This could put them at a disadvantage when it comes to retiring early, since the returns on cash have historically been far lower than those of shares.
For example, at the present time it is difficult to obtain an interest rate on your savings account that is in excess of 1.5%. By contrast, investing in the FTSE 100 offers a dividend yield of 4%, plus capital growth that has averaged 6% per annum since the index’s inception.
Therefore, it may be a worthwhile move for anyone with a long-term time horizon to invest in shares rather than hold cash. Although there may be a higher chance of loss, the track record of the FTSE 100 shows that it has always recovered from short-term challenges to post successful recoveries.
Of course, your risk can be lowered and your return potential improved by investing in fundamentally-sound businesses. They may have relatively low debt levels, strong cash flow and offer solid strategies that can generate high levels of growth.
At the present time, the growth potential of emerging economies such as India and China is high. As such, it may be a good idea to focus your money on companies that are positioned to capitalise on it. Likewise, buying stocks that are exposed to the UK could be a sound move due to them including margins of safety within their valuations.
When it comes to buying shares, history shows that the best time to do it can be during periods of uncertainty for the wider economy. This may present lower share prices that ultimately lead to higher return potential.
For example, at the present time, there are ongoing risks surrounding Brexit and the global trade war. They could cause many high-quality stocks to trade on low valuations, which may improve their return potential.
Although low valuations can be in place for good reason, for example due to higher risks, long-term investors may benefit from focusing on them. They could boost your returns and help you to build a larger nest egg that enables you to retire early.
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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.