There is a rising trend among working professionals to retire early and enjoy life to its fullest. It sounds exciting and why shouldn’t it as you get plenty of healthy life and spare time to indulge in things which you always wanted to do. However, to turn this dream into a reality, your investment habits need to be really robust. It is needless to say one should properly plan this much earlier in professional life. More the delay, higher the likelihood of not attaining the goal of early retirement.
If you are one of these modern breed of professionals who want to retire early, here is what your investment strategy should be.
Control Your Costs
To begin with, you must control your expenses. Ideally, you should use only about 30-50 per cent of your monthly income and invest the balance in growth-oriented investments.
Be Covered By Insurance
It’s always recommended to have a term insurance with sum insured of 15-20 times your annual income. This supports the family of the policy holder in case of his/her sudden demise. Along with term insurance, taking a comprehensive health policy that covers you and your family would aid in large expenses incurred due to health problems. It’s better to go for a longer tenure so that your medical emergencies are taken care of till you turn 65-70. If you start early, you can significantly save on the premium costs.
Set Aside Higher Sum For Investment
Early retirement needs a sustainable and an impeccable investment strategy, as living without regular salary requires proper and early financial planning. Set aside higher portion of your income only for investment purposes. If you can invest 40-50 per cent of your income, it will help you create quite an adequate corpus by the time you turn 50. Even if you are in your early or mid-30s, you have 15-20 years to produce the needed wealth.
Your preference for investment should be equities. The Indian equity markets have delivered double-digit returns in the long-term. Since March 1999, the index has delivered around 10.6% per annum, and since March 2009, it has returned close to 15% per annum, on average. Several high-performing mutual funds have delivered well above these numbers. Hence, given a window of 15-20 years, equities can help you generate significant wealth to take care of your post-retirement needs and expenses. Consider 5-6 equity mutual fund schemes from different categories and start monthly systematic investment. The funds should be allocated in schemes like large-cap (blue chip) schemes, diversified equity scheme, a pure mid-cap or small-cap equity scheme, one or two sectoral funds (like banking fund, healthcare fund or an infrastructure fund) and one tax saving equity scheme. Further, lump sum investments in these schemes when the stock markets is low could accumulate higher number of mutual fund units at lower costs.
Buy Your House Soon
It’s advisable not to carry any mandatory monthly financial liabilities as your regular monthly income stops. So, your own house is a much needed asset. If you don’t have one, buy it soon, and clear off the normal 20 year repayment process through EMI by or before you turn 50.