Early retirement is more than just a pipe dream when you’re able to find investments that offer a good balance of growth and security.
3h ago · By Marie Brodbeck, InvestorPlace Contributor
- The best stocks for early retirement are those that toe the line between growth and safety.
- Airbnb (ABNB): This is a growth stock that’s ready to keep running.
- Disney (DIS): A tried and trusted name that’s recently pivoted into a high-growth industry.
- Johnson & Johnson (JNJ): A stable, rock-solid balance sheet supplements JNJ’s strong market position.
BUY ALERT: 5 Hypergrowth Stocks to Buy for 2023
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There are many ways to retire early, but the easiest path starts with finding the best stocks for early retirement.
The magic of compound interest means those who want their golden years to start a little earlier just need to get their money into the market as soon as possible, and let time do the rest. The S&P 500’s annual return comes in at 8.5% when adjusted for inflation, meaning investors could dump their money into an index fund and call it a day. But picking the right stocks can bump that return a little higher, which could shave years off the time it takes to hit your retirement goal.
There are a few things to look for when it comes to finding the best stocks for early retirement. One key factor is growth— where will do you see this stock in 20 or 30 years? A long growth runway is key if you want to buy and forget. Another big consideration is financial stability. All companies are going to see some ups and downs as the economy ebbs and flows, but you want to be holding companies with the financial fire-power to thrive during a down cycle.
Many wonder whether dividends are a key component in an early retirement investment plan. The answer to this depends on the company. Companies that pay out large dividends are generally not in a position to deliver outsized growth— otherwise they’d be reinvesting that money into their future projects. But dividend stocks have their place in every portfolio. Here are three of the top options on my list right now.
Airbnb (ABNB)
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There’s a lot to like about Airbnb (NASDAQ:ABNB), which makes it one of the best stocks to buy for early retirement. The company’s a clear leader in the travel industry, boasting $63.2 billion worth of bookings on its platform in 2022. Airbnb has become synonymous with travel, which is the kind of brand power most companies would kill for. Plus, the company is in a strong position to capture travel spend in the year ahead as cost pressures weigh, causing many people to consider a staycation rather than a fancy trip abroad.
Management is expecting to see revenue growth in the mid-double digits this year, despite posting a 24% rise in 2022. Meanwhile, Airbnb’s planning to maintain its underlying EBITDA margin at 35%. All of this is music to investors ears— a growing business that’s also delivering on the bottom line is a great thing, especially given all the headwinds right now.
That kind of business doesn’t come cheap— Airbnb shares are trading at 42-times earnings. That’s steep for any industry, and it adds a layer of risk if the company can’t live up to expectations. However, the company’s share price has come down significantly over the past year, so investors who believe in the growth story might find this to be a good entry point.
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Disney (DIS)
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Disney (NYSE:DIS) is dealing with its fair share of problems right now. However, the market-driven nosedive DIS stock has been on essentially puts one of the best stocks for early retirement on the sale rack.
The company saw its shares surge over the pandemic, as excitement about its newly launched streaming service ballooned. However, a few years down the road, and investors are becoming impatient as they look for evidence that the House of Mouse will be able to turn a profit from its streaming arm.
Losses in its direct to consumer business, where streaming is housed, are growing, leading Disneys’ management team to make some difficult cuts to stop the bleeding. The market’s reaction has been negative with shares down 31% over the past year. But Disney’s in a good position to make a comeback.
The new leaner organisation will be more focused on making its streaming business profitable, with some estimating that we could see it inch into the black as soon as 2024. Plus, you have to respect the group’s ability to squeeze every last dollar out of its content. Between the parks, merchandise, streaming and movies, Disney is able to eke out a lot of milage from its content catalogue. For investors that are willing to wait out some turbulence, this could be the cheapest you’ll ever buy Disney stock.
Johnson & Johnson (JNJ)
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Johnson & Johnson (NYSE:JNJ) is one of the best stocks for early retirement for many reasons, but chief among them is the group’s rock-solid finances. There are currently only two companies with an AAA credit rating, and Johnson & Johnson is one of them. This has supported the group through thick and thin over the past few years, and it’s a big part of the reason JNJ’s been able to raise its dividend every year for the past 60.
But JNJ isn’t your average, boring dividend stock. It’s currently in the midst of orchestrating a spin-off of its consumer healthcare business. This will result in a leaner, more focused company with the potential to grow rapidly thanks to the pharmaceuticals and medtech businesses left behind. On top of that, JNJ’s position within the healthcare space means it’s a relatively defensive play as well. When costs rise, consumers tighten their pursestrings, but they’ll never stop shelling out for healthcare.
On the date of publication, Marie Brodbeck did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.