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How to retire early (FIRE) with ASX shares

Tristan Harrison
Celebrate Happy

There is a growing movement of younger Australians looking to escape the rat race and retire early, or at least gain financial independence, with ASX shares. I am of course talking about ‘FIRE’.

The concept is simple. Save as much money as you can (while happily living your life) and squirrelling it away into investments and then let compound interest help you get to FIRE. Many of them are aiming to retire by 40 or even earlier.

Some aspirational Aussie FIRE-ers may have previously said that investing in residential real estate could be a good strategy to achieve FIRE. But falling house prices, low rental yields, rising interest rates and the need to take on huge debt are several reasons why this avenue doesn’t look so good at the moment.

Instead, I think investing in shares is the best way to go.

To me, there are three stress-free options to get to FIRE with ASX shares:

Broad index-based Exchange traded funds (ETFs)

General investing advice would say that the simplest way to get to a strong wealth position is to go with ETFs, which gives you exposure to a broad range of shares in one investment. It makes investing very easy. There’s hardly any initial research except choosing one of the ETFs amd you don’t have to worry what’s happening at individual companies along the way. You just regularly invest throughout the economic cycles.

Considering most share market indexes have returned an average of 10% a year, it would be a great strategy.

Just one, or a mix, of iShares S&P 500 ETF (ASX: IVV), Vanguard US Total Market Shares Index ETF (ASX: VTS), Vanguard MSCI Index International Shares ETF (ASX: VGS), Vanguard Australian Share ETF (ASX: VAS) and BetaShares Australia 200 ETF (ASX: A200) could be great choices for their low costs and pleasing returns.

Listed investment companies (LICs)

Another option is to go for LICs. Most LICs also have diverse portfolios, they choose what shares to buy (and sell) and have more control over the dividend payments to smooth them out through economic booms and busts.

Some of the old-school LICs have low management fee costs and stable dividend histories such as Australian United Investment Company Ltd (ASX: AUI), Whitefield Limited (ASX: WHF), Australian Foundation Investment Co. Ltd. (ASX: AFI) and Argo Investments Limited (ASX: ARG). They generally have matched the returns of the market over the long-term.

However, there are also other LICs that try to generate market-beating returns whilst paying out pleasing dividends such as WAM Research Limited (ASX: WAX), WAM Microcap Limited (ASX: WMI), MFF Capital Investments Ltd (ASX: MFF), Naos Emerging Opportunities Company Ltd (ASX: NCC) and Clime Capital Limited (ASX: CAM)

High-quality alternatives

Other simple ways of reaching your FIRE wealth target could be long-term alternatives such as listed investment trusts (LITs), two of my favourites are Magellan Global Trust (ASX: MGG) and Ophir High Conviction Fund (ASX: OPH), which have outperformed their index benchmarks materially since inception.

Real estate investment trusts (REITs) are worth considering, such as farm landlord Rural Funds Group (ASX: RFF).

There are also interesting individual companies that could generate non-cyclical market-beating returns such as water entitlement business Duxton Water Ltd (ASX: D2O) and investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

If I could only pick three of the above ASX shares, aside from the globally-focused ETFs, to help me reach FIRE it would be Soul Patts, Magellan Global Trust and MFF Capital.

Another way to reach early retirement is by investing in a portfolio of high-quality individual ASX shares like these which could beat the market over the long-term.

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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO, Magellan Flagship Fund Ltd, MAGLOBTRST UNITS, RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019