Do you often dream of retiring early? Perhaps you envision yourself and your partner sipping fruity drinks on a terrace somewhere in Europe. Or, maybe you love the idea of having the freedom to pursue passions without worrying about your earning potential.
Most people retire at a similar age (although this age bracket does change over time); in the US, the average age of retirement is between the ages of 61 and 65. So, what if you want to enjoy your freedom before that, perhaps when you’re 55, 50, or even when you’re in your 30s or 40s? It’s definitely not unheard of, and certain investment strategies can help you get there, including the following.
1. Systemic Downside Hedging
If you are planning on retiring sooner rather than later, one of your biggest concerns is likely market crashes or a recession, as this can seriously impact your investments. That’s why a systemic downside hedging strategy is so important. This refers to an investment strategy that protects the portfolio from economic shocks or crashes, and it often involves purchasing shifting assets when necessary and purchasing index put options.
Choosing asset management that prioritizes systemic downside hedging is key here, and that’s what investment advisory firm Markin Asset Management does. They focus specifically on shielding your portfolio from drawdowns, reducing general exposure to market drops, and optimizing for tax efficiency. This is particularly helpful for those close to retirement who want to preserve the capital they already have while compounding wealth (without too much risk involved). As well as systemic downside hedging, this firm uses other modern approaches such as adding alpha to a multi-asset portfolio.
2. Tax Loss Harvesting
Tax loss harvesting is all about reducing how much of your net income is taxable so that you don’t owe as much each year (which can lead to far greater savings). It involves selling any of your investments that have lost value as a way of offsetting gains from your other investments. So, you may sell a “loser” investment, then subtract that loss from your gains, so your taxable profit is less. You can then reinvest what you have earned from selling it to stay in the market.
3. The Three-Bucket Framework
The three-bucket framework is a common strategy in retirement investing. It’s all about reducing panic during market crashes. There are three buckets to use here:
- Short-term bucket: 1-2 years. Invest in high-yield savings accounts and pull income directly from it.
- Medium-term bucket: 3-7 years. This includes assets like short-term bonds and dividends. Use it to earn interest while refilling the short-term bucket if you need to.
- Long-term bucket: 8+ years. This involves investing in stocks, index funds, and real estate. Fluctuations are more likely, but long-term investments mean that the market stabilizes over time.
4. Investing More of Your Wages
Finally, invest more of your wages to retire early. It’s the simplest but often most effective strategy for retiring early. You’ll need to live on a leaner budget, pulling back your outgoings so you can use more of your income to invest. Eventually, it will mean building more wealth so that you can retire early and live the life you want.
