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Investing Secrets to Retire Early

Zacks Research Staff

Investing Secrets to Retire Early

Achieving the financial freedom to retire early is a dream for many. And making that dream a reality isn’t as impossible as it sounds. The secret is simple: Save a lot more each month. Sounds easy, right? Not so fast.

Typically, advisors peg 15% to 20% of total income saved each month as a goal—but if you want to retire earlier, you probably have to ratchet that number up to 40% or 50% of your income. Not an easy feat when you take into account that a good portion of your paycheck goes to essential, non-negotiable — lifestyle items. However, if you are willing to make some serious lifestyle changes and sacrifices, it’s possible.

A relatively new movement called Financial Independence, Retire Early (FIRE) has been developed around this “sacrifice and over-save now, to retire early” concept. FIRE followers develop strict savings programs (up to 75% of income) and making associated sacrifices like living in small apartments, walking to work every day, restrictive diets, and so on. This path may be too restrictive for most, but the mindset offers some takeaways that might be worth considering.

Try Investing More of Your Income

There are numerous ways to diversify a portfolio, and how you do so should depend on your age, your risk tolerance, your growth and income needs, and your long-term goals. Yet no matter what, most investors should stick with the fundamentals of long-term growth investing: Choose a diversified portfolio of stocks with exposure to different styles, sizes, sectors, and regions.

To accelerate the retirement investment cycle, you can construct a portfolio designed with more risk—and the potential for higher returns—but it should still be appropriately diversified to protect against larger than average market drawdowns that can be difficult to recover from and ruin any chance to accomplish your early retirement goals.

Once you have accelerated your savings and put an on-going plan in place, invest your savings into your portfolio as soon as possible. Don’t try to time the market. Instead, leave your portfolio alone and let the compounding nature of the markets do its magic to help grow your retirement nest exponentially over time.

If you aren’t an experienced, savvy investor, ETFs are an excellent way to invest for your retirement. ETFs offer low fees in a diversified investing product made up of a basket of stocks in a particular sector, asset class or specialized investment area.

Zacks regularly ranks and identifies top ETF retirement portfolio picks, and here are just a few that might be worth consideration: iShares Russell 2000 index (NYSE:IWM); Vanguard Value Fund (NYSE:VTV); Vanguard Real Estate Trust (NYSE:VNQ); SPDR S&P 500 (NYSE:SPY); and iShares Core MSCI Emerging Markets (NYSE:IEMG). These ETFs have shown to be excellent long-term investments that are widely held, and should provide both the alpha and safety to help potentially put you on the path to early retirement.

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iShares Russell 2000 ETF (IWM): ETF Research Reports
Vanguard Value ETF (VTV): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares Core MSCI Emerging Markets ETF (IEMG): ETF Research Reports
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