How To Retire Early

by Oliver J. Scholten PhD

This is a practical guide on how to get from 0 to 1 in personal investing, which is the key to early retirement. This is not financial advice. Some topics are simplified.

Aim: to go from someone who doesn’t invest at all to someone who is comfortable managing their own assets (money).

Good personal asset management is what separates normal people from wealthy people.

Step -1: Know Your Mentors

Whenever you find information, consider who is providing it and why, myself included. Are they selling you anything, what do they stand to gain from helping you, and so on.

I’m writing this because when people ask me what I do and I say ‘I’m retired’, they usually ask ‘how old are you?’, and then ‘how did you do it?’.

I stopped working at 29 and this is exactly how…

Step 0: Understand Taxes

Before starting it’s important to figure out which types of investment accounts are available to you, and how they might be more or less tax efficient when it comes to selling your investments.

For example, in the UK there is a Stocks & Shares ISA, which is tax free but with a yearly deposit limit of £20,000. There is also a SIPP which is mostly tax free but only allows withdrawals past the age of 55 (pension), and a yearly deposit limit of £60,000. Do a quick search for what’s available in your country. You’ll need to know this for Step 2 below.

You may think ‘I don’t have much right now, so I’m not really worried about taxes’.

In the next few years you will hopefully be managing hundreds of thousands of pounds, at which point tax efficiency becomes really important, and something you may not be able to fix later on, so take a moment to find what would be best for you.

I have 50% of my investments in a SIPP, 45% in a Stocks & Shares ISA, 4% in a regular trading account, and 1% in a regular bank account for rent/food/etc.

Step 1: Choose a Fund

This is the hardest part. Investing means you buy and hold something you think will increase in value over time. This is more risky than saving (in a bank account) in the short term, but global index funds have historically significantly higher performance.

I exclusively invest in global index funds for this reason. When choosing a fund I look for two things;

I like GB00BJS8SJ34 (0.12% fee), and hold a 100% allocation across all three of my investment accounts. I don’t own any other funds, I don’t invest in any individual stocks/gold/crypto etc.

Step 2: Choose a Platform

Once you know what you want to buy, you need to find a platform (broker) who can sell it to you. Not all funds are available on all platforms, and not all platforms have the same account types (from Step 0). If you can’t find the fund on any platforms in your country, choose a platform you like and find similar funds which you could buy there instead. Only three things matter when choosing a platform;

I like Interactive Investor (£15/month fixed).

Step 3: Deposit and Purchase

The hard part is over, now you need to actually deposit funds to your account and start investing.

At this stage you have the entire skillset needed to manage and grow your portfolio.

Step 4: Scale

Be patient, even a diversified global index can be volatile and stay down for months at a time. What matters is the long term performance. When scaling I focus on;

And remember: the guy with the Gucci flip-flops and new iPhone every year isn’t maximising his investment potential. Don’t take the ‘luxury goods’ bait.

Step 5: Optimise

Now you’re managing more money and it’s growing faster as it compounds, and some of the decisions you made earlier might not be optimal for your performance. Take the time to research questions about your financial situation like;

Now What?

Everything above is what worked for me, and importantly it was executed through a period in history where the global economy has been/is booming.

I’ve been disciplined, patient, cautious, and also very lucky.

There are many open questions left, like;

Each of these answers can dramatically change your investing potential and your long term plan, but knowing them early on will help you understand what you need to focus on and over what time frame.

After completing everything above you’ll have a pot of steadily growing investments which you can sell every few weeks to fund your lifestyle, and if you’ve hit the critical amount then your portfolio will grow faster than you need to sell it.

Congratulations, you are now financially independent.

A Word To The Wise

Remember that money isn’t everything. I know it doesn’t feel that way when you don’t have enough, or when problems exist in your life that money can solve, but try to enjoy the process and remember that there are some problems which no amount of money can solve.

On Alternative Investments

You may be considering alternative investment strategies like buying an apartment to run an AirBnB, or maybe starting a coffee shop. My aim has always been to completely disconnect my income from my lifestyle, which 'higher touch' investments like these don't allow.

If I have a bad day or take a week off, my income doesn't change, since if the global index grows so does my portfolio. For me that's the best possible scenario.

Good luck and ask me about anything that’s unclear.

Oliver