Today I’m going to explain how I would invest £20,000 to build a large financial nest egg to be able to retire early.
Anyone can follow this advice. You don’t have to have £20,000 to start saving for the future. All you need is a regular investment plan and set of goals, to make sure you stay on track.
As such, here’s the strategy I would use to retire early with any amount of money.
Planning to retire early
Investing in UK shares is a great way how to build wealth over the long term. Over the past 120 years, UK equities have produced an average annual return for investors of around 8%. This return has come from a combination of dividend income and capital gains.
Based on this long track record, I think it’s reasonable to assume investors can look forward to a similar return in the next few decades.
So, which companies should investors own to profit from this growth and retire early?
The best companies on the market, in my opinion, are high-quality blue-chip stocks. A couple of businesses stand out. Reckitt Benckiser and AstraZeneca are two key examples. Both of these companies have large, international operations and diversified portfolios of products, which should help them produce attractive total returns for investors in the years ahead.
Investors can also make use of investment trusts and index funds to capitalise on the wealth-creating power of the stock market in the long term. Index funds track an index such as the FTSE 100.
Meanwhile, investment trusts rely on experienced investment managers to pick stocks. Both have their benefits and drawbacks.
I think a combination of all of the above would make the perfect portfolio for investors trying to retire early. A handful of high-quality blue-chip stocks, alongside a portfolio of investment trusts and tracker funds, would provide investors with exposure to all areas of the market.
Compound interest
By having exposure to all areas of the market, investors can make the most of compound interest, which may help you retire early.
Put simply, compound interest is the process of your money making money. For example, £20,000 compounded at 8% per annum for 40 years could grow to be worth £485,000.
If you don’t think this will be enough to help you retire early, you can always add some funds along the way. A starting investment of £20,000 with monthly deposits of £100 could grow to be worth £837,000 after 40 years at a growth rate of 8%.
Monthly investments of £500 on top of an initial £20,000 deposit could grow to be worth £522,000 in 23 years, providing an attractive nest egg to help an investor retire early.
The bottom line
That’s how I would invest £20,000 to retire early. I would use a combination of blue-chip stocks, trusts, and funds to capitalise on the market’s long-term growth potential.