Thanks for this newsletter. I turn 55 this year. I’m hoping to retire early. The idea of not retiring for another 10-15 years is not appealing at all. My goal is to be able to comfortably retire within the next 5 years and live on my retirement earnings well into my golden years. My goal is to make solid choices in my portfolio which will get the double digit returns I need in order to make my goal. Thanks in advance for your information and guidance.
We sincerely appreciate your readership. We also appreciate you taking the time to reach out to us.
In order to show how much we appreciate all of that, we’re taking the time today to craft a thoughtful and helpful response to you.
First, I want to say that I believe I’m in a great position to help you with your goal.
Your goal is to be able to retire within the next five years.
Well, I went from below broke to financially independent and retired early in six years.
Now, some of the moves I made could be considered “extreme” by some.
But extraordinary output (like retiring quickly) requires extraordinary input.
I’ve actually shared that entire journey, via a step-by-step guide, via my Early Retirement Blueprint, which will almost surely be helpful for you.
You’ll notice, by reading through that guide, that there are two primary keys to the success I’ve achieved: saving and investing.
I’ll first address the investing part.
The long-term investment strategy I’ve chosen is dividend growth investing.
And I’ll quickly tell you why.
This strategy is incredibly simple and straightforward.
It involves buying up equity in world-class businesses that are so proficient at regularly increasing their profit, they end up sending out reliable and growing dividends to their shareholders.
These growing dividends serve as an excellent litmus test for business quality.
So by sticking to high-quality dividend growth stocks, you’re sticking to great companies.
And investing in great companies over the long haul is obviously much better than investing in terrible companies.
But that’s not all.
Growing dividends also serve as an excellent source of passive income for retirement.
Having enough passive dividend to cover your bills means you don’t need a job and that paycheck any longer.
If you can build out a large and diversified portfolio of high-quality dividend growth stocks, you can construct the growing passive dividend income you need to pay for your bills and retire.
That’s exactly what I did, as you can see by looking at my FIRE Fund.
That Fund is my real-life and real-money dividend growth stock portfolio, and it generates the five-figure and growing passive dividend income I need to pay for my basic bills in life.
But that’s just my portfolio. You’ll need to construct your own retirement portfolio.
The great news is that you won’t be short on ideas or opportunities.
The late, great David Fish’s Dividend Champions, Contenders, and Challengers list is the most robust and complete list of dividend growth stocks I know of, and you’ll find a number of world-class businesses with household brand names by looking over that list.
It shouldn’t be a surprise that you’ll see well-known companies there, for it takes a special kind of business to be able to rack up the growing profit necessary to fund growing dividends for years on end.
Of course, you don’t want to blindly pick stocks off of that list, nor would you want to blindly pick stocks off of any list.
But we’ve got you covered, Jamie.
Fellow contributor Dave Van Knapp put together a great series of articles that are designed to teach anyone the tenets of dividend growth investing, why it’s such a fantastic long-term investment strategy, and how to successfully implement it.
That series can be freely accessed by diving into the Dividend Growth Investing Lessons.
And then once you find yourself ready to actually put capital to work, I personally highlight a compelling long-term dividend growth stock investment opportunity every Sunday via the Undervalued Dividend Growth Stock of the Week series.
All that said, Jamie, the other key to my success thus far has been saving.
You can’t invest what you don’t have. And you need money to make money.
That’s why you’ll want to start developing good savings habits today.
To illustrate how powerful saving is, I’m going to assume you’re one of the world’s best investors and that you’ll be able to return 15% annually on your investments over the next five years (your retirement time frame).
Now, 15% is unrealistic. The stock market has averaged a return of something close to 10% annually (in nominal terms) over the last 100 years, but that’s before taking inflation into account.
However, just for the sake of this illustration, we’ll assume you can do much better than the stock market. And I’ll assume you’re starting with $0.
If you can save $500 per month, then compound that at 15% annually for a full five years, you end up with a little over $46,000.
I’m not sure what you’re starting with, but $46,000 isn’t a lot of money.
Conversely, if you can save $750 per month, then compound that at just 8% annually for a full five years, you end up with a little over $57,000.
$57,000 isn’t a ton of money, either, but it’s better than having $11,000 less. And you’ll be generating more passive dividend income in the latter scenario.
The great saver did better than the great investor here.
It’s better to be an excellent saver than an excellent investor, especially if your time frame to retirement is short.
This is an important concept to keep in mind, because it’s far more difficult to be the next Warren Buffett than it is to develop good savings habits.
This illustration is designed to keep your investment expectations realistic, while simultaneously showing you the power of savings.
The guide I linked to earlier goes through some best practices as they relate to savings.
Now, you’ll almost surely be collecting some kind of retirement benefits: Social Security and perhaps even a pension is likely in the cards for you.
So I doubt you’ll have to rely on your savings and investments alone.
But I do think the above information will greatly aid you in your quest, Jamie.
It’s ultimately up to you to get started, though.
There’s no time like today to start working toward your retirement goals.
I wish you luck and success.
Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.