While the idea of retiring early may appeal to a lot of people, not all of them do something about it. Getting to stop working at a younger age requires financial resources. One way to try and build those is by investing regularly in the stock market. Here is how I could go about that, focussing on FTSE 100 shares.
Setting goals
I would begin by setting up a regular saving mechanism. That could be a standing order, or simply the discipline of putting cash aside each week or month. This money would form the basis of my investment plan.
Not everyone has the same financial goals for retirement, though. Some people want to splash out on a pricy item like the holiday of a lifetime. Others want regular income to help fund expenses like school fees or health costs.
So I would get clear in my head what exactly I thought my personal financial goals for retirement are. They could well change over time. But at least having a well-considered starting point should help me decide, for example, whether I ought to choose FTSE 100 shares based on their growth potential or take more of an income focus.
Building a portfolio
Even the best laid plans can go wrong — including for previously successful businesses.
I would therefore build a portfolio diversified across a range of shares. I could invest my money in any corner of the stock market, so why would I focus on FTSE 100 shares? In short, those are blue-chip companies of a certain size and often with a proven business model.
In itself that does not mean they will necessarily do well in future. But if I can do my homework and identify companies with outstanding businesses and attractive share prices, hopefully I will be able to benefit financially. Retirement planning involves a long-term timeframe. I look for solidly run businesses I think may have many decades of strong commercial performance ahead of them. Hopefully, by doing that, I can identify some opportunities that will help me grow my wealth for decades.
Choosing shares to buy
Once I had found such shares I would buy them with the £500 I was saving. I would then look at the businesses from time to time to see whether any developments had changed the investment case. But otherwise I would take a long-term, buy-and-hold approach.
I would also keep saving £500 a month to invest. That adds up to £6,000 per year, which could help me build up a sizeable retirement portfolio over time.
Why would I buy and hold rather than try to jump in and out, taking advantage of share price swings? In my opinion, FTSE 100 shares like Diageo, National Grid, and Unilever have strong businesses with competitive advantages that could last for decades (and already have, in many cases).
People give things like fine wine and their garden time to mature. I think it is the same with investing in fine companies. If they really are good, then holding them for the long term ought to help the quality shine. If that means a higher share price, juicy dividends, or both, it could help me retire early.
The post I’d start spending £500 a month on FTSE 100 shares to retire early appeared first on The Motley Fool UK.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Unilever Plc. 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.