While it may seem that the prospect of retiring early is becoming increasingly unachievable due to a rising State Pension age, the stock market continues to offer a potential vehicle for achieving this goal.
Certainly, in the near term there may be uncertainty ahead due to risks such as a global trade war and Brexit. But by focusing on shares rather than cash, investing in undervalued stocks and holding them over the long run, the potential to get rich, retire early and beat the rising State Pension age may be higher than many people realise.
Cash vs shares
While Cash ISAs continue to be more popular than Stocks and Shares ISAs, it is the latter which could offer higher returns in the long run. Although in previous decades interest rates may have provided savers with a generous income return, in the last decade interest rates have been at historic lows.
This situation could persist for many more years, with interest rates expected to move higher at a relatively slow pace. With Brexit risks being high, the Bank of England may not wish to risk the future growth rate of the economy by adopting a tighter monetary policy.
By contrast, the stock market continues to offer long-term growth potential. The FTSE 100, for example, has a dividend yield of around 4.5%. This indicates that it may be cheap at the present time. As such, investing capital, rather than saving it, could be a worthwhile move.
Value stocks
While the UK stock market may have experienced a decade-long bull run, there are a number of large, medium and smaller companies that appear to offer good value for money. Therefore, investors who are looking to capitalise on the growth potential of the stock market may be able to put together a highly appealing portfolio that offers growth potential plus diversity.
Although value shares are often unpopular in the short run, they can deliver impressive returns over the long term. Since many people who are investing for retirement are likely to have long-term views, they will have the time for value stocks to come good. As a result, they could be the most appealing risk/reward opportunities available.
Buy and hold
While a buy-and-hold strategy may sound rather obvious when it comes to investing in the stock market, doing so can prove to be challenging. In other words, when a bear market comes along, it is tempting to sell up and avoid potential future paper losses. Likewise, investors may cash in on profits generated during a bull market too early.
Indeed, it makes sense for an investor to allow the companies they hold to implement their strategies and for the stock market to then factor in their full potential. If there are better opportunities available elsewhere, selling could be an option. But in many cases, simply buying good stocks and allowing them the time they need to generate capital growth is a worthwhile move for anyone who is seeking to get rich, retire early and beat the State Pension.
