The prospect of retiring early may seem unlikely to someone with no pension savings at age 40. However, the reality is there could still be time to build a retirement nest egg that can provide a passive income before the State Pension age comes along.
In fact, through investing in global growth trends it may be possible to generate impressive returns over the long run. And by purchasing companies that offer solid fundamentals, as well as the potential for dividend growth, it may be possible to produce a sizeable nest egg from a modest initial investment.
Growth opportunities
Even though the world economy faces an uncertain future, there are always opportunities for long-term investors to capitalise on growth trends. For example, technology is constantly impacting on the way business is undertaken in a variety of industries. This could mean investing in disruptive businesses that seek to change how an industry operates, and how companies interact with their customers, may produce high returns in the long run.
Similarly, global growth trends such as consumer goods sales in emerging economies and rising demand for healthcare due to an ageing world population could provide a catalyst for a retirement portfolio. And with many shares currently trading on low valuations, now could be the right time to buy a range of stocks to provide a diverse growth opportunity in the long run.
Company fundamentals
Of course, investing in companies that have solid fundamentals is a key part of building a retirement portfolio. Although interest rates may have been low for over a decade, they’re unlikely to stay at the current level over the long run. This could mean that identifying businesses with net cash positions, or modest levels of net debt, is crucial in obtaining an attractive risk/reward ratio within a portfolio.
Likewise, companies that have strong cash flow which can be used to reinvest for future growth could be relatively appealing. And seeking companies that have an economic moat could lead to strong capital growth as they find it easier to overcome potential challenges for the world economy that may be ahead.
Dividend prospects
While seeking to generate capital growth could be a good idea for an investor with 20+ years until retirement, buying dividend stocks may also prove to be a sound idea. Historically, the reinvestment of dividends and their subsequent compounding has contributed to a significant part of the total returns generated by indexes such as the FTSE 100 and FTSE 250 since their inception.
Therefore, focusing on a company’s ability to afford its current level of dividend and its potential to produce rising shareholder returns over the long run could be a worthwhile move. It may produce higher returns that increase your chances of retiring before the State Pension age comes along.