If given a chance, many people would love to retire at a relatively young age.
Retirement allows you to spend more quality time with friends and loved ones and gracefully exit the rat race.
The stock market provides an opportunity to do just that.
Although it may take time to accumulate enough wealth to retire, doing so after 30 years of working full time is definitely a realistic prospect.
Let’s find out how you can go about doing so.
The key to retiring by the age of 50 is to start investing at a young age.
In fact, starting with your first job, it is crucial to save and invest even a small amount each month.
This disciplined approach allows compounding to have an even bigger impact on the value of your portfolio over an extended period of time.
For example, investing for a 30-year period versus a 20-year period makes a huge difference to your portfolio value.
Assuming an 8% total return per annum, this would equate to a total return of close to 4.7 times the original value invested over 20 years.
However, investing at the same rate of return for 30 years would cause the total return to rise to over 10 times its original value.
In dollar terms, it means that for every S$100 invested, it will grow to around S$466 in 20 years.
But if left to compound for just another 10 years, the S$466 will more than double to S$1,006.
Such is the magic and power of compounding.
Therefore, in order to increase your chances of retiring by 50, it pays to start as young as possible.
The right stocks
Clearly, investing over a long period will be fruitless if all of your stocks perform poorly.
That’s why it is important to have a mix of shares that offer both growth and income.
During a three-decade period, there will inevitably be booms and busts.
Therefore, there will be times when it makes sense to buy higher-risk growth shares, which could offer significant capital gains.
But there will also be periods where more defensive, higher-yielding shares provide better returns thanks to their perceived safer status among investors.
As a result, it is logical to have a mix of growth and dividend-paying companies within a portfolio.
Various studies have shown that the majority of investment returns in the long run are derived from dividends.
While they may lack the excitement of growth shares, dividend stocks should still form part of a portfolio which is focused on early retirement.
It can be difficult to set aside an amount each week or month for retirement.
For starters, retirement may feel like a distant target with no real urgency, especially if you’ve just started your first job.
At the same time, spending your money to live in the moment can be tempting..
However, the reality is that we all will have to retire eventually.
As such, it makes sense to plan early to ensure that it is as stress-free as possible.
This planning takes discipline since there is always a temptation to spend on cars, holidays, and other comforts of life today.
However, by setting aside a portion of your monthly income for investments, it is very possible that by the age of 50 you will no longer need to work to afford an abundant lifestyle.
Get Smart: Don’t fail to plan
As the saying goes — we do not plan to fail, but we can fail to plan.
A blissful retirement is certainly achievable if you are disciplined and stay the course when it comes to investing.
Planning ahead is important so that you know how much to sock away into your investment every month and year.
As this sum grows larger over time, you are one step closer to that idyllic retirement.
50 may feel like a lifetime away, but you want to make sure that when you do hit that age, you have the rest of your lifetime to relax and enjoy.
Disclaimer: Royston Yang does not own any of the companies mentioned.