How To Retire Early Through Stock Investing

by on September 4, 2015

Many workers set a goal of retiring early. Early retirement can allow you to pursue a hobby or passion full-time. Reaching this goal can be very difficult. It takes years of careful investment planning. A stock portfolio, however, can generate a high rate of investment growth. Use these tips to invest in stocks to reach your early retirement goal.

Choices for retirement investing

There are three strategies you can use to retire early:

· Company retirement plan: Work for an organization that offers a retirement plan benefit. Most retirement plans are now defined contribution plans. You contribute investment dollars, along with your employer. Eventually, the investment portfolio is large enough to generate a retirement income. This is the most traditional method of planning for retirement.

· Accumulate a portfolio: You invest money into an investment portfolio you control. The portfolio grows over time, just like a company retirement plan. In this case, however, there are no company contributions into your plan. Eventually, the investment portfolio is large enough to generate a retirement income.

· Grow and sell a business: You’re a self-employed person. You grow a successful business over your career. As you near retirement age, you sell the business. The dollars you receive from the sale are invested- and the invested dollars generate retirement income.

In addition to these three choices, you also have social security income that can supplement retirement. Many investors use a combination of these three strategies. In order to retire early, however, you may need to do more.

Investing more, using stocks

Retiring early requires you to do two things differently. First, you need to invest more each year. Investing into your company retirement plan at traditional levels will not be enough to fund your early retirement plans. Even with company contributions, the dollars you accumulate will undoubtedly come up short.

You also need to invest in securities that generate the highest rate of growth. To fund an early retirement, the dollars you invest need to grow rapidly. This means that the majority of your portfolio should be invested in stocks. For example, AAPL is the stock symbol for Apple common stock. AAPL stock has seen a rapid increase in its stock price in recent years due to several factors.

Factors that drive stock growth

Here are some factors that drive stock price increases:

· Using capital: A stock’s value can be judged by how well the firm uses the capital invested in the business. A business issues stock and raises money from investors. Those funds are used to buy assets and operate the business.

· Growing sales: Companies like Apple use shareholder funds wisely. They make smart investments about new products. Those products are in high demand, which allows Apple to grow sales.

· Increasing earnings: If sales grow, so can company earnings. Many analysts consider a firm’s Price to Earnings (P/E) ratio to be the best indicator of a company’s value. This ratio is the company’s current stock price per share, divided by the earnings per share. A lower ratio is considered more attractive. The more earnings per share a company can generate, the better the P/E ratio. Apple grew profit (earnings) by 38% in the second quarter, as compared with the same quarter last year. That’s one reason why the stock price has increased.

To reach early retirement, you need a high rate of portfolio growth. Use these tips to invest in stocks and fund your early retirement.

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