One of the big aims for almost everybody I speak to is to have the opportunity to retire early. And it comes from a wide variety of age groups. Those in their 50s and 60s often think about it as retirement comes into view, while Millennials and Generation Z also think about how they can achieve this despite their younger age.
Whilst there is no set monetary figure you need to have in the bank in order to retire early, you should work out a figure that’s right for you. This depends on your personal circumstances, outstanding liabilities, dependents and so on. From this, if you follow some straightforward investment tips, you can look to reach that figure and retire early — by making your money work harder.
1. Mix it up
First, you can look to speed up reaching whatever your retirement monetary figure might be by diversifying and mixing into exciting growth shares that could pay off big over just a few years, and steadier growing stocks. By investing your cash in companies you believe could grow fast in the short term, as well as in those you believe have potential to progress over the next five to 10 years (and beyond), you could have the best of both worlds.
I’d look for solid longer-term names that will hopefully deliver steady (if unspectacular returns) but that are low-risk. An example of this could be HSBC, which is one of the largest firms on the FTSE 100 index by market capitalisation. I’d balance this with a growth company such as Greggs. It rallied 60% in 2019, and could be set for another strong year.
This approach allows you to mix your risk by building your capital slowly via the lower-risk names, but seeing outperformance from the high-growth names. This could make your money work harder and grow faster than, say, just putting it in a FTSE 100 tracker fund.
2. Invest in income-paying assets
While you may have investments that can more than cover your expenses, they’re most probably not in the most liquid form (cash). You may have invested in stocks that don’t pay out dividends, and are holding them to hopefully gain from capital appreciation.
There’s nothing wrong with this, of course, as my first tip recommends it. But it might not be able to support your day to day cash expenses upon retirement. So in the years leading up to the day you quit the rate race, look to invest in assets that will pay you regular income. For a stock investor, the easiest way to do this is through buying into a firm with a high dividend yield. For example, the Royal Bank of Scotland is expecting to pay a 6.2% yield for this year.
In the period before you need the dividend income to live off, make your money work harder by reinvesting the dividend proceeds back into your overall position.
Retiring early can be a genuinely achievable goal to have. With investing in income-generating assets and by mixing up the risk and time horizon of your investments, you can hopefully speed up the process and then be in a position to enjoy retirement on the back of investments that have worked really hard for you.
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Jonathan Smith does not own any of the firms mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.