Planning Early Retirement and Financial Independence At An Early Age

  • Oct 10, 2019 BST
  • Team Kalkine
Planning Early Retirement and Financial Independence At An Early Age

Many people across the world get confused between savings and investment, remember, “Just because you are saving a lot more doesn’t mean you are getting more wealthier, don’t confuse savings with investments.”

In the business of investing, savings are considered as raw material for making investments, which in return creates humongous wealth for the investor and his successors. Also, many people get confused between richness and wealth; the richness can be wiped out within the span on one's lifetime, but wealth is perpetual, and it gets transferred from generation to generation.

Time and again it is proven that, equity as an asset class has delivered financial independence to many investors and created a gargantuan amount of wealth for those who stick with the fundamentally sound companies for a decade or two.

So, just savings can’t help to achieve your financial independence, unless you are putting them into compounding asset classes like equity. Let's us know what is meant by financial independence.

Financial Independence, which usually stands for the ability to retire at an early age, is achieved through a process of generating savings and putting these savings into compounding asset classes which helps a person to create a humongous amount of money in order to be able to retire far earlier than traditional budgets and retirement plans would allow. But it requires a higher level of consistency and patience- consistency in terms of generation of savings and patience in order to let the compounding effect take its own course.

The vast majority of people around the world want to consume everything today, and that is why we are witnessing how gigantic the outstanding on credit card, for the whole society, has become. When somebody wants to consume more today, you need someone who is ready to lend money today against that person’s future income. For the rest of his life that person will be burdened with big EMIs or loan Instalments, which will not allow him to retire early. This is because he has bought goods or services today against his future income and he has to work in order to pay his dues. Otherwise, it will lead him to bankruptcy.

One of the legend investors of all times, widely known as "Oracle of Omaha" – Warren E Buffet clearly said that “ When you buy things which you do not need, sooner or later you will have to sell things which you need”. He emphasised a lot on savings, as he said, “Spend what is left after saving but don’t save what is left after spending”.

Saving is an activity in which you forgo your current consumption and invest these proceeds in a basket of asset classes to achieve financial freedom at an early age. However, just saving can't lead you become wealthier unless you are not investing them, because money loses its value over the time and here the inflation effect comes into the picture. Because of inflation in every major economy, money loses its purchasing power over time according to the degree of inflation. Let's say if inflation is in between 2-3% in an economy, it means that money going to lose its purchasing power by 2-3% in a year.  The demand you are going to meet next year with the same money will be 2-3% below what you did in the current year.

Therefore, you need an asset class whose growth offsets the damage of inflation. In the United Kingdom the 10yr Government Bond Yield is around 0.5% and the average inflation rate over a decade was 2%, which reflects that instead of making money you are losing 1.5% year-on-year by remaining invested in the bond.

Now, here equity as an asset class fills the gap. As an equity investor, you are buying a financial claim on the real asset of the business. Even when you are sleeping, someone in the company is working for your money. If we throw light on a handful of wealthy people across the world, you come to know that they usually hold three kinds of asset classes, Equity, Real Estate and Intellectual Properties.

But many people argue that it is hard to identify the right business for a layman, who does not understand the equity market. So, here comes the role of financial advisors. Getting a competent financial advisor is the first step in the journey of investing in order to create a humongous amount of wealth. Financial Advisors are the people who possess necessary skills and qualification to identify best investment opportunities for their clients. In return they charge a nominal fee, which is like insignificant against the quantum of wealth one makes.

Equity investing is not a rocket science requiring a high level of intelligence, instead it is a slow, meandering and consistent process to figure out the right stocks. If you don't have enough time to do so, you would do better to hire a financial advisor who puts his time and energy to structure a good investment for you. Financial advisors devote their quality time in searching for the right businesses for investment.

Your investment journey with the right financial advisor has the potential to create massive wealth so that you could avail of an early retirement.

Now, there are the ample number of stocks in the UK in the past, which have already turned investor's wealth into a fortune within a decade. We will be looking at two such examples: stocks which have turned out to be multi-baggers within a decade.

Ashtead Group Plc- a company with strong fundamentals and competitive advantages; this company has created a fortune for its shareholders over the past one decade. Its shares have handed a gargantuan 3,023% return in the past 10-years. Which implies, £100 invested ten years ago in Ashtead Group Plc is worth £3,123 now, including capital gain and reinvested dividend.

AB Dynamics Plc- Alternative Investment Market-listed industrial engineering company; this stock has delivered a humongous 1,288% return for its shareholders in the last five years. An amount of £1,000 invested 5-years ago in AB Dynamics Plc’s stock is worth £13,880 now.

However, there will be many such opportunities in the market, which will turn out to be the next multi-baggers or ten-baggers; The question is, are you holding those businesses in your portfolio?

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

Amidst this, are you getting worried about these falling interest rates and wondering where to put your money?

Well! Team Kalkine has a solution for you. You still can earn a relatively stable income by putting money in the dividend-paying stocks.

We think it is the perfect time when you should start accumulating selective dividend stocks to beat the low-interest rates, while we provide a tailored offering in view of valuable stock opportunities and any dividend cut backs to be considered amid scenarios including a prolonged market meltdown.

To know more about these dividend stocks, click here

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