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How to retire at 40 with ASX dividends

The movement to be financially independent and retire early (FIRE) has picked up steam in recent years, but can understandably seem out of reach for the average Australian.

If you’re not a doctor, lawyer or business owner then the income levels required can seem unattainable. The good news, however, is that compounding returns are on your side.

How you can retire early at 40 with ASX dividends

The key to securing your financial future is to invest in income-generating assets.

These could be ASX dividend stocks like BHP Group Ltd (ASX: BHP) or your own business that makes a profit. Other options are real estate investment trusts (REITs) like Scentre Group (ASX: SCG) or simply your own investment property.

Whatever your investment vehicle of choice, a combination of disciplined savings and smart investing can get your closer to your goal of early retirement. 

Perhaps you can save a nest-egg of $100,000 by 30 and invest that in a high-yield ASX stock like Alumina Limited (ASX: AWC).

Alumina shares are currently yielding a tidy 10.80% per annum and have even gained 9% in 2019.

By reinvesting your Alumina dividends for 10 years, that $100,000 could become a whopping $278,867.31 by the time you’re 40.

This goes to show that you don’t need to be making the megabucks to retire early in this day and age.

The addition of leverage can help accelerate your progress, but also raises the risks of your investing activities. While leverage could amplify your gains and boost your cash-on-cash returns, it will also amplify your losses.

How should I secure my financial future?

Personally, I’m a big believer in putting your cash into diversified investments such as Vanguard Australian Shares Index ETF (ASX: VAS).

Others will be able to achieve their goal to retire early through solid growth investments like Afterpay Touch Group Ltd (ASX: APT) or Appen Ltd (ASX: APX).

Whatever your weapon of choice, a touch of discipline and dash of luck can put you on the FIRE path in no time.

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Kenneth Hall owns shares of Vanguard Australian Shares Index. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of Appen Ltd. 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.