The secret ingredients for “how to retire early” using the stock market are not locked up in a vault somewhere. At least not anymore. Today, we live in the Information Age where information is readily available, and accessible to all. Everything you need to know is a mouse-click, or finger tap away.
But here are the “secret ingredients”, anyway:
Nowadays, everybody knows about the powers of compound interest. In a nutshell, you simply buy shares of quality companies, re-invest the dividends, and watch the snowball buildup over time. By the time you retire, your golden hen(s) will have laid so many eggs, you’ll never have to worry about going hungry again.
Compound Annual Growth Rate
Then, there’s the idea of compound annual growth rate. We know that the stock market is volatile, and prices jitter, moving wildly up and down on a day-to-day basis. By stepping back and focusing only on the long-term movements, we can free ourselves of the noise, and get a clear picture of the real signal. By doing this, we now see that market is resilient, and able to withstand tough economic times. In the long run, it always moves in the upward direction!
So, we can buy today, knowing almost certain that the price will increase in the future. Further, we also learn that when the market does plunge, it’s temporary, so we should not be fearful, but instead, greedy. These downturns provide the best buying opportunities of all, so load up!
Dividend Growth Investing
Lastly, dividend growth investors have spread the word and educated people on how to build a reliable income stream. Those seeking to reach financial independence (like myself), now know that it is possible to build a sustainable passive income portfolio by investing in a blend of large-cap, dividend paying (and growing) companies.
By focusing on dividends and dividend growth, we can now: ignore the fluctuating stock price (for the most part), beat inflation, receive a paycheck every quarter (or half year, or year), and count on pay raises every year.
We strive to invest in the largest, most stable, best-in-class companies. These premiere blue chips have a strong history of not only surviving tough economic downturns, but thriving in spite of them. Their history shows a rugged dividend, one that never gets cut, and only continues to grow each year. These gems make up the Core Holdings in our portfolio. But, because nothing in life is certain, outside of death and taxes, we take a Buy and Monitor stance on each one of our positions. For extra safety, we usually own a basket of stocks, ranging from 10-40+ holdings.
Just for clarity, here are some blue chips that fit the bill, and would make any dividend growth investor proud to own in their portfolio.
Procter and Gamble (PG)
Johnson and Johnson (JNJ)
Exxon Mobil (XOM)
And, that’s basically all there is to it. These are the secret ingredients for “how to retire early” using the stock market. Others might utilize something slightly different for their own recipe, but these ingredients are the ones I’m cooking with.
And just like with cultivating a garden, one size does not feed all. You’ll also need to figure out how many dividend seeds to plant to satiate your appetite. I don’t eat much, so I don’t need to plant many dividend seeds, or worry about growing over-sized dividend trees either.
The rest is just time. Lots and lots of time.