Here’s how you can RETIRE AT 40

With the right kind of savings and investments, it is possible to retire early in life, says Vijay Valecha, chief investment officer at Century Financial, who is himself on that journey

It almost sounds improbable, but is it actually possible to retire at 40? It’s definitely possible – and not just probable, it is also doable. There are just certain do’s and don’ts. The first and the most important one is to never ever expand your lifestyle too much. Being in Dubai, it’s the easiest thing to do. People tend to expand their lifestyles and spend much more than they actually earn.

I’m not saying that people should just postpone their holidays or put aside things just for the aim of retiring at 40. But the idea is to just have a smaller budget and be more planned for each one of those activities.

The reality is that you don’t require a huge amount of capital to be retiring at 40. An example is what I call it as the ‘5 to 15 rule’.

So, let’s say that your current expenditure is $5,000 a month. The idea is that you need to make sure that you get fixed returns of $5,000 from your investments after you retire. People think to earn $5,000 [after retirement] is a very complicated process. It really is not. If you have to make $5,000 a month – which is $60,000 a year, you have to invest somewhere around $1m overall [as per the 5 to 15 rule]. So, if you have investments or savings of over $1m at the age of 40, it is definitely a possible opportunity to retire. The important things to note is that you need to start investing at least 10 to 15 years before the age at which you wish to retire. For instance, I started investing at the age of 25.

How should one structure their investments?

The idea of investment as compared to your returns is a very simple graph that a person

“The important things to note is that you need to start investing at least 10 to 15 years before the age at which you wish to retire”

should follow. As a person’s age goes higher, the risk capital of the investments has to go lower. So, if you start investing at the age of 30, and you’re looking for a return of 10 to 12 per cent per annum, as your age goes in the 35 to 40 bracket, you have to ensure that you don’t look for returns of more than 5 to 6 per cent annually. The main reason for controlling that is because you cannot take that much risk as you grow older.

In terms of an investment portfolio, the best thing to do is diversify yourself – not just through asset classes, but also through countries, investment companies and banks.

It’s good to have a bond portfolio, an equity portfolio and invest in gold. I think gold is here to stay for the ages, although it will have slower growth for now. I feel a small percentage should also be given to cryptocurrencies because there is a possibility that it becomes a new asset class. I would highly recommend not more than 1 per cent of your total capital investment. Looking at real estate, it is going to pick up very soon – especially in this part of the world. The UAE government is taking excellent steps in getting tokenisation done, where we can have fractional ownership of real estate.

In terms of geographies, I’m bullish on the emerging markets – I still think Asia has a lot more growth potential. At the same time, at least 60 per cent of your capital has to be with the world’s biggest economy – so major investments have to be with the US. Also, don’t ever get into any investment strategy that promises you very high double-digit or triple-digit returns annually. Anything which is too good to be true is not true.

What has been the biggest challenge for you on this journey?

The biggest challenge I would say is the YOLO (you only live once) movement. However, I don’t compromise on my holidays or my vacations. The idea is just for prioritising what you really prefer and what you don’t. Just keep focusing on a year-to-year basis and the goal will actually be there.