Having no retirement savings at age 50 may cause a degree of worry for many people. After all, retirement is likely to be less than two decades away, and the State Pension is currently inadequate for most retirees to enjoy financial freedom.
However, it may still be possible for you to retire early on a rising passive income. By investing in high-quality businesses with wide economic moats, buying shares through the economic cycle and adopting a long-term strategy, you could build a large retirement nest egg that provides a rising passive income.
Clearly, determining the strength of a specific business is subjective. However, there are numerous areas in which investors can make an informed decision as to whether a company offers a favourable investment outlook.
For example, a high-quality business is likely to have a wide economic moat. In other words, it will have a competitive advantage versus sector peers that helps to provide it with a more favourable financial outlook than those peers. This may take the shape of a unique product that cannot be easily copied, a long history that aids customer loyalty, or simply a more attractive asset base that benefits from lower costs.
Additionally, focusing on a company’s financial standing, its track record of growth and its plans to improve its future performance could all provide guidance on its overall appeal. Through buying the most attractive companies, you may be able to improve your chances of generating high returns.
After a decade of rising share prices, it is easy to forget that recessions and bear markets will come along in future. They may occur in 2020, or at some later date, but all investors can use them to their advantage whenever they occur.
Certainly, bear markets cause short-term pain through producing paper losses. However, they also provide the opportunity to buy high-quality stocks while they trade at low prices. This can improve your long-term returns, and could build a larger retirement nest egg.
Therefore, starting to invest at age 50 means that there is likely to be one or more bear markets prior to your retirement. Investing through them, rather than avoiding shares, could be a profitable long-term move.
At age 50, you are likely to have a long-term time horizon. This means that you can allow your holdings the time they need to deliver on their strategies to improve their financial performance. This strategy may lead to higher returns, with many of the world’s most successful investors having adopted a long-term focus when it comes to managing their portfolios.
A long-term focus allows compounding to have a greater impact on your portfolio. It could help you to retire early and build a nest egg that ultimately provides a growing passive income in older age.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019