Building sufficient financial resources to retire early may sound like a dream, but making that dream come true is not as hard as it may sound. The main thing is simply to save more money each month. No big deal, right? Well...
The typical rule of thumb given by financial planners is to have a goal of saving up to 20% of total earnings. But if you want to retire when you're younger, that percentage will probably need to be more like 40% to 50% of your income. Of course, that's not so simple since a big part of your paycheck goes to day-to-day, necessary expenses. So if you want to save that much, you need to make some serious lifestyle adjustments. It requires making changes, but it's doable.
A relatively new movement called Financial Independence, Retire Early (FIRE) has been developed around this "sacrifice and over-save now to retire early" concept. FIRE followers develop strict savings programs (up to 75% of income) and make associated sacrifices like living in small apartments, walking to work every day, restrictive diets, and so on. This path may be too restrictive for many, but the mindset offers some takeaways that might be worth considering.
To start, stick with the essentials of long-term growth investing: Build a diversified portfolio of stocks with exposure to various styles, sizes, sectors, and regions.
To accelerate the retirement investment cycle, you can construct a portfolio designed with more risk - and the potential for higher returns - but it should still be appropriately diversified to protect against larger than average market drawdowns that can be difficult to recover from and ruin any chance to accomplish your early retirement goal. There are numerous ways to diversify a portfolio, and how you do so should depend on your age, your risk tolerance, your growth and income needs, and your long-term goals.
Once you've begun saving at a higher rate and you have an investment plan, put that money to work in your plan as quickly as you can. Don't worry about finding the "perfect time" to invest - simply put the money in and keep it in. Let compounding work to help you grow your retirement savings at an exponential rate.
Astute investors pick retirement growth stocks with low beta, strong earnings estimates, positive sales growth, and expected future growth.
The Zacks Rank routinely recognizes lower risk growth retirement portfolio picks, and here are a few that may be worth considering: Bristol-Myers Squibb (BMY - Free Report) , CenterPoint Energy (CNP - Free Report) and Darden Restaurants (DRI - Free Report) . These growth stocks have strong Zacks Ranks and a beta of 1 or lower, with earnings and sales growth of at least 5% over the past 5 years.
Do You Know the Top 9 Retirement Investing Mistakes?
Whether you're planning to retire early or not, don't let investing mistakes derail your plans.
If you have $500,000 or more to invest and want to learn more, click the link to download our free report, 9 Retirement Mistakes that will Ruin Your Retirement.