The average retirement age in Canada is 65, and it keeps increasing. Many Canadians are working past the retirement age as they are still paying off their mortgages or have insufficient retirement savings. While the Canada Pension Plan (CPP) and Old Age Security (OAS) give some respite, it is not enough to retire worry-free. If you want to skip the average life, you should take control of your finances, spend frugally in the early years of your life, and invest more. You will be surprised to see how your early-age investments compound by the time you reach your mid-30s.
How to build a portfolio that can help you retire at 50 with confidence
While you can retire anytime you want, a strong financial backing can give you the confidence to retire early without giving up on your dreams. You could aim for a $1 million portfolio and $1,000 in monthly passive income by age 50. To build such a portfolio, you would have to start investing at least 15 to 20 years in advance. Only when you invest money, time, and knowledge in the stock market can you grow your portfolio
Create a dedicated “Retire at 50” portfolio in your early or mid-30s. You can divide it into a core portfolio for $1,000 in passive income and a secondary portfolio for wealth creation.
Retire at 50: Stocks for passive income
To generate a passive income portfolio, you could consider investing small amounts every month in dividend aristocrats that pay regular dividends and even grow them annually. As you are investing for the long term, you can choose a higher dividend growth rate over a higher yield. The power of compounding will help you get a higher dividend income from a higher growth rate.
Telus Corporation (TSX:T) is a good long-term investment as it currently has a high yield of over 7% and grows its dividend at an average annual rate of 7%. Instead of a small amount, you could consider investing a lump sum while the stock trades closer to its pandemic low. It is one of those buy-the-dip opportunities whereby you can get the stock at a 36% discount from its April 2022 high. The long-term downtrend in the stock is because of the high-interest expense. Since the Bank of Canada has begun interest rate cuts, the debt burden would ease and the stock price could recover.
Investing a large amount in this dip can help you lock in a 7% yield. Consider opting for the dividend reinvestment plan (DRIP), which will reinvest these high yields to buy more dividend-paying shares of Telus.
You could also consider investing in Manulife Financial, which has a lower dividend yield of 4.4%, but its 10% dividend compounded annual growth rate (CAGR) could accelerate your passive income portfolio.
Retire at 50: Stocks for wealth creation
You can consider risky investments in the secondary portfolio, as only high-growth stocks can generate a million-dollar portfolio. Consider building the secondary portfolio in a Tax-Free Savings Account (TFSA) that allows tax-free withdrawals. Otherwise, a lump sum capital gain could eat up a major chunk in taxes.
Nvidia (NASDAQ:NVDA) is a high-growth stock you could invest in to ride the artificial intelligence (AI) and autonomous vehicle (AV) trends. Even though the stock is trading at a high valuation, consider investing a small amount every month to take advantage of dollar cost averaging. You can buy fewer shares in a bull market and more shares in a bear market. The stock has the potential to grow your money four- to five-fold in the next five years as Nvidia’s chips remain unbeatable in AI performance. The company is looking to commoditize AI by helping companies build AI factories and creating the next industrial revolution.
You could also consider investing in Hive Digital Solutions and Dye & Durham, both of which are trading at their lows and could grow your money multiplefold.
Investor takeaway
These stocks can help you build a $1 million portfolio only when you stay invested and avoid the urge of frequent withdrawals. Consider building a separate portfolio for other financial goals like buying a house or car.
