Early retirement is the financial state
of being where you don’t have to work. You only work if you want to. Early retirement is reached when your passive income exceeds your expenses. The average retirement age in the United States is 63.
Retiring at any age is an accomplishment, but I think you will agree with me when I say that the earlier you retire, the better. There are 6 key factors that determine how long it will take for you to reach retirement:
Making sure you are up to date on information on increasing your income and savings rate, and reducing your expenses is vital to retiring early. The size of your investment account now is based on your past decisions and for some people, being born into a wealthy family. It is what it is; you can’t change it.
How you invest will determine your investment returns and the yield on your investment portfolio when you are (early) retired.
I believe that dividend growth investing is uniquely situated to offer individual investors a way to build a portfolio for rising passive income that will lead to early retirement (depending of course on your income and expenses).
What Is Dividend Growth Investing
Dividend growth investing is what it sounds like. The core idea of dividend growth investing is to invest in businesses via the stock market that are likely to pay growing dividends over time.
Dividend growth investing has a hidden benefit. It focuses you on the business, and not on the stock price. This means less (and hopefully no) panic selling during recessions. In fact, many dividend investors take advantage of market declines by purchasing into great dividend growth stocks while they are trading at a discount.
The reason dividend growth investing matches up with building an early retirement portfolio so well is because it provides rising income over time. This is a powerful feature that is not a characteristic of investing in bonds, gold, Bitcoin, or stocks that don’t pay dividends.
There’s no question building a portfolio for early retirement can be complicated… But it doesn’t have to be.
By investing in individual great businesses and holding them for their rising income potential (dividend growth investing), you can build a portfolio that is very likely to pay you rising income over time.
And importantly, investing in individual stocks eliminates costly management fees from mutual funds and ETFs so your money is left to compound in your account, where it belongs.
The bottom line is that retirement requires a stream of income in excess of your expenses. That income stream must also grow at least as fast (though preferably much faster) than inflation. Otherwise, you lose purchasing power – and you won’t stay retired for long.
Dividend growth investing can create growing income streams that are likely to rise well in excess of inflation. The unique characteristics of dividend growth investing are a compelling match for those seeking early retirement.
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