2021 is Here: 3 Ways You Can Accelerate Your Retirement

2021-01-08     thesmartinvestor
2021 is Here: 3 Ways You Can Accelerate Your Retirement

The majority of us wake up every day, striving to earn enough to provide for our families and a comfortable retirement.

What many may not realise is that you don’t have to work till you drop.

By harnessing the power of saving and investing, we can greatly accelerate our path to retirement.

The road to retirement may be littered with obstacles, but with patience and determination, you can achieve it sooner than you think.

Here are three ways you can achieve your retirement goals earlier than expected.

Build up a stash of cash

It’s a fact that if you don’t have any money, you can’t invest.

Therefore, the first step that brings you closer to your dream retirement is to have a healthy savings habit.

Understandably, the pandemic may have resulted in pay cuts or frozen salaries.

The new year offers a good opportunity to review your financial situation and, if necessary, think of ways to further tighten your belt.

Hopefully, with a recovery in place, once the COVID-19 vaccines are distributed successfully to various countries, we should witness slow but sustained economic recovery.

The first rule of personal finance is to pay yourself first.

This golden rule forms the basis of how you can slowly but surely build up a solid stash of cash to serve as both an opportunity and emergency fund.

An emergency fund consists of cash that can pay for around six to 12 months of expenses, and frees you of the need to sell your investments in haste just to raise cash.

The problem with being compelled to sell is that you may be forced to lock in debilitating losses if share prices are depressed by a bear market.

Having an opportunity fund provides you with the means and opportunity to deploy your capital into growing companies to build your wealth.

Invest in great companies

The second step is to find great companies that you can invest in to enjoy long-term capital appreciation.

Although many companies have been negatively affected in one way or another by the crisis, the resilient ones will pick themselves up again and grow even stronger.

Reputable companies with a long track record of tackling crises can offer peace of mind and ensure your capital remains safe even during turbulent times.

Examples are blue-chip companies such as OCBC Ltd (SGX: O39) or Singapore Exchange Limited (SGX: S68).

These businesses have been through multiple crises and have always emerged relatively unscathed.

Strong companies are also able to continually increase their dividends through good times and bad.

Rising dividends mean that your flow of passive income increases every year, bringing you ever close to your retirement objectives.

Companies such as sports footwear and apparel giant Nike (NYSE: NKE) and coffee chain Starbucks (NASDAQ: SBUX) have shown their ability to raise dividends year after year.

Nike recently raised its annual dividend by 12% year on year, the 19th consecutive year it has done so.

And Starbucks has been raising its dividend without a pause for a decade, with its board approving a 10% year on year increase despite the pandemic.

The power of compounding

The final piece of the puzzle is an innocuous yet important word: compounding.

Compounding involves the reinvestment of the dividends you receive into the very same shares that paid out those dividends.

Albert Einstein, the famous scientist, was said to have referred to compounding as the “eighth wonder of the world”.

The reason why compounding is such a powerful force is that it increases your overall capital base.

And this is the base that generates returns for you year after year.

As the base increases over the years, the math works itself out to a phenomenal number.

To give a simple example, imagine starting with S$1,000 in investments.

Assume you manage a 10% return every year for the next 20 years.

If the amount is compounded, you end up with a princely sum of around S$6,727 after 20 years, more than six times what you started with.

But if you earned 10% on the same S$1,000 base over 20 years, you would only end up with S$3,000 after the same period, less than half of what you would have achieved had you chosen to compound.

Get Smart: Never too late to start

Do not feel worried if you have not started on any of these three steps.

It’s never too late to take charge of your financial future, and the best time to start is now.

With perseverance and patience, you will be able to bring forward your retirement and also enjoy the fruits of your investment success.

As Singapore sees the light at the end of the pandemic’s dark tunnel, we want to be there to capture the opportunities that recovery brings. 

Start the year off right, and make 2021 a more profitable year for your investments.

Join The Smart Investor for a FREE webinar, 2021: A Year of Great Opportunities.

Smart Investor’s Co-Founders David Kuo, Chin Hui Leong, and Joanna Sng will discuss how to ride the recovery and uncover timely opportunities in the stock market in 2021.

Click HERE to register for FREE!

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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited, Nike and Starbucks.

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