Buying cheap stocks today to retire early may not seem to be a sound strategy at first glance. After all, a second stock market crash could be ahead due to a weak global economic outlook, as well as the risk of a further rise in coronavirus cases.
However, investing in a wide range of high-quality businesses today for the long run could enable you to benefit from the stock market’s recovery potential.
Over time, this may help you to build a surprisingly large nest egg, even from a standing start at age 50, that provides you with a generous passive income in older age.
Retire early with a long-term focus
Building a nest egg that enables you to retire early will take a considerable amount of time. However, at age 50, you are likely to have sufficient time to do so. After all, you are likely to have at least a decade or more through which to use the stock market’s growth potential to build a retirement portfolio. As such, even if stock prices come under further pressure in the coming months, there is likely to be enough time for them to recover in time to boost the prospect of bringing forward your retirement date.
A long-term focus will allow you to take advantage of favourable buying opportunities at the present time. The recent market crash has caused a number of stocks to trade at cheap prices. While they may move lower in the short run, they could provide long-term investors with the opportunity to buy bargain stocks that offer turnaround potential. Over time, they may produce higher returns than the wider market’s long-term average, and could have a positive impact on your plans to retire early.
A diverse range of quality stocks
Of course, economic uncertainty means that not all stocks will help you to retire early. There may be some sectors and/or businesses that are unable to deliver strong profit growth – especially since the outlook for many industries is currently very uncertain amidst a period of weak economic performance.
Therefore, it is logical to buy a diverse range of businesses within your portfolio. This can reduce your reliance on a small number of companies, while also providing exposure to a wider range of sectors that may boost your portfolio’s return profile.
Furthermore, buying high-quality stocks may help you to retire early. Companies with wide economic moats, sound finances and clear growth strategies may be better able to strengthen their market positions in the aftermath of the market crash, and deliver improving profitability that leads to a rising stock price. Over time, they may outperform the stock market and make a large positive contribution to your portfolio’s performance, thereby allowing you to bring forward your retirement date.