I have a plan to retire early by building a diversified portfolio of growth and dividend shares.
Investing in UK shares can be a great way for individuals to generate long-term wealth. Over the past decade, they’ve delivered an average annual return of 10%.
This is the sort of return that can help regular investors retire in comfort. But I’m not content to wait another few decades before I hang up my work apron. I’m looking to generate a healthy second income that I can live off much sooner than that.
Retiring early
I’m trying to achieve this by carefully researching and buying a wide range of UK shares. That’s opposed to buying a tracker fund that follows broader movements across a selection of British equities. The iShares Core FTSE 100 ETF that tracks the Footsie is an example of this.
By picking individual shares I’m confident I can make an average annual return of 12% to 15% over the long term. Successfully hitting this investment objective could trim years off the date upon when I could realistically retire.
Let’s say that I have £250 a month to invest in stocks. If UK shares continue to produce that 10% average yearly return they have over the past decade I would, after 30 years, have made a healthy £493,400.
If I then applied the 4% withdrawal rule I’d have earned a passive income of £19,376.
However, if I manage to hit that 15% yearly rate of return I would be living off that healthy second income a full six and a half years earlier.
Buying dividend shares
I think that buying dividend shares is a particularly-good way to reach my investment objectives. The regular income they produce can be reinvested so I can boost my returns through the miracle of compound interest.
Dividend shares can also better help my portfolio weather tough economic periods, providing a more consistent long-term return.
Income stocks, for example, can help protect me from runaway inflation. What’s more, the non-cyclical operations of many income stocks (like utilities, telecoms and defence companies) gives them supreme earnings stability during downturns.
2 income stocks I own
Persimmon is one top FTSE 100 dividend share I’ve bought to help me retire early. I was attracted to its vast double-digit yield, which currently sits at an index-leading 15.3%.
It’s true that the housebuilder could face some near-term trouble as rising interest rates temper home sales. But over the long term I think I will deliver terrific returns as construction rates increase to meet demand. The National Housing Federation for instance says that 340,000 new homes are currently needed each year.
I’ve also invested in 4.3%-yielding property stock Tritax Big Box REIT. I think it will deliver splendid shareholder profits as e-commerce growth drives demand for its warehouse and logistics centres. That’s even though a failure to acquire decent assets could negatively impact its growth prospects.
I also like Tritax because, as a real estate investment trust, it pays 90% of yearly profits out by way of dividends.