Retire earlier

If you’d like to retire sooner, here are five rules you need to follow – and they are probably not what you’re thinking

1. Let the markets work for you
With more than 98 million trades a day, across the global markets, the probability is remote that a committee discussing where to invest your money will spot a favourable discrepancy in a stock price. Instead, buy a diversified basket of global index tracker funds
and let the markets work for you. A wide basket of stocks from around the world linked directly to market returns can reduce the risk of trying to outguess
the markets.

2. Always diversify
Investment returns are random; they cannot be predicted with any certainty, so don’t let your financial adviser visit you each year moving and changing your funds to justify their existence and their fees. They are wasting your money. Also, limiting your investment universe to a handful of stocks, or even to one stock market, is a concentrated strategy with high risk implications. Instead, buy the global market using a diversified basket of index tracker funds and leave the speculation to the gamblers.

3. Take back control
Conventional wealth management institutions are happiest when the status quo prevails; it’s more profitable for them and their shareholders. These corporates are in business to maximise shareholder value – not your investment returns. It is therefore essential to take back control of your money and ensure that the ‘hidden’ ongoing portfolio costs are kept to the bare minimum. Aim to keep the costs of managing your portfolio at under 1%. The industry average is in the region of 2.3%, so if you save yourself even 1% a year you will have made a substantial amount of money using compounding interest over the life of your portfolio.

4. Don’t let fear rule you
When there is a decline in markets, investors want to jump and wait for the markets to recover before going back in. However, market timing cannot be predicted. Most people don’t reinvest until they get their optimism back, which is often too late; by then the stocks have risen, you’ve missed out on the gains, and you still have your losses to make up. Manage your emotions by investing in a risk portfolio that is correlated to your capacity for loss. Not one that is based purely on your search for the highest returns.

5. Are you losing money by saving?
Your capital deposited in a bank is being eaten by inflation at 2-3% every year. Over the last 10 years, whilst the stock markets have gone up, the buying power of your bank deposited savings has decreased dramatically and will continue to do so for the immediate future. My advice is to look at investing, rather than ‘saving’ with a bank; diversify your portfolio; let the markets work for you; and ensure you keep your management fees to around 1%.

Hannah Goldsmith is founder of Goldsmiths Financial Solutions and author of Retire Faster