There’s really no minimum age to start to think about the point at which you might want to retire. And even if you’ve got no savings at 30 or even 40, you can still target retirement before the state average. One way to achieve this aim is by investing small amounts regularly into a Stocks and Shares ISA. Don’t forget, stocks within an ISA don’t accrue capital gains tax when you sell them or on the income you earn. Over time, your investment will grow and grow. Leave it for the longer term and it can make early retirement a definite possibility. So what are my tips?
Be tactical, but don’t be a trader
Due to the stock market crash in March, there are still some great opportunities to buy discounted stocks for a Stocks and Shares ISA. So to be sure to take advantage of this. My first tip is to start straight away! Delaying the start of your investment pot by even six months could see you lose out on some large potential gains. No one can say for certain whether we’ll have a second stock market crash or if the recovery will accelerate into the autumn. But one thing we can say is that, there are some great stocks to buy right now. I wrote about some of my favorites here. So investing right now shouldn’t put you out of pocket if you look back in a few years’ time.
Secondly, there’s scope to be tactical in your monthly investing. So for example, if you’d been investing £500 a month in the ISA and then the crash in March came along (when the FTSE 100 was down almost 30% year-to-date) then you could have decided to invest £1,000 for that month. This attitude is smart and allows you to increase your investing when stocks look cheaper. However, don’t go as far as becoming a trader. Flipping your £500 on a weekly or even daily basis isn’t what we’re about here at The Motley Fool. It’s incredibly hard to time the market perfectly, and can often see you making big mistakes.
Plan your ISA allocations carefully
My third tip stems from the fact that some investors will just buy a FTSE 100 tracker fund and hold it. For some this is the right strategy, but for many it isn’t. Allocating some money to high-growth stocks, some to defensive stocks, and some to other classes could give you much more profitable diversification. After all, there are very few restrictions on what you can include in your Stocks and Shares ISA. So be creative, because careful planning can help you to outperform a simple FTSE 100 tracker index. Any out-performance then allows you to have an enhanced return, which can speed up the time needed to reach the figure needed to retire early.
Finally, make sure you have some income-paying stocks in your portfolio as you build it up. This is because you may need to take some funds out of your Stocks and Shares ISA at some point. It’s preferable to be able to take the income part out rather then selling a high-growth stock that could rise further. Doing so avoids unnecessary churning on your account, which again could hamper longer-term performance.
So set your planned retirement age, start investing small, but start straight away!
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jonathansmith1 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.