F.I.R.E is an acronym for Financial Independence Retire Early. It is a very popular movement that gets a lot of attention in the blogosphere and on social media. The idea is to eat excess amounts of ramen noodles, squeeze your budget until it squeals, save 90% of your income, invest like crazy in an all-stock portfolio, and then never work another day of your life after the age of 38. I’m kidding, please don’t “OK Boomer” me. 🙂 In reality, most from the F.I.R.E. movement will not “retire” early, but many may reach a wonderful form of financial independence. In 2020, was the F.I.R.E. movement doused by the pandemic?
2020 brought us a very quick and violent stock market correction. It was the most violent in history, but so was the recovery as governments and central banks came to the rescue of stock and bond markets. Looking back it feels like a blip. But in the moment it was more than scary, considering that we did not know the path of destruction that SARS-coV-2 might leave behind.
We still don’t know.
Did the F.I.R.E movement change course?
From what I read from my F.I.R.E friends (they’ll say I’m being rather presumptuous with the use of that friends description), they embraced the volatility. After all, volatility is not risk, if you can handle that risk, and you have an incredibly long time horizon. Volatility and falling stock prices are an opportunity, whether you are seeking to build that growing dividend stream or plan to one day also harvest shares to create retirement income.
In March of 2020 I asked …
Is this an incredible investment opportunity or what?
In the Globe and Mail, Brenda Bouw offered how F.I.R.E investors are managing through the pandemic. (Sorry that is paywall, but I’ll give you the important deets). That is a great piece with some good commentary, especially from advice-only planner Jason Heath.
The F.I.R.E. traps.
F.I.R.E. followers need to be extra vigilant as their nest eggs need to last decades longer than those who retire in their 60s and 70s. There is the perception that the F.I.R.E. gang have less risk, because they are young. In fact the opposite is true. From Jason …
“You may need to over-save and underspend longer than you might think when you’re pursuing the F.I.R.E. movement,” says Jason Heath, an advice- and fee-only certified financial planner at Objective Financial Partners Inc. in Markham, Ont. “When you’re retiring at age 40 versus age 65, there’s so much more margin for error.”
Jason also pointed out that funds can quickly disappear because of costs associated with an extraordinary event, such as a serious injury or illness that requires long-term care or having a child with a disability.
“If you don’t budget for the unexpected, that could really compromise your early retirement plan,” he says.
Of course it is true that the F.I.R.E. folks may have the opportunity to go back to work if need be. But it’s also important to use the word “MAY”. It’s not a given that health would permit the opportunity to work. There is no guarantee that meaningful work would be available. I hate to be a Dale Downer, but this is the reality that we should accept and recognize.
The good new is, they won’t actually “retire”.
Nobody really retires early except for teachers and other public servants. So if you want to really retire early, you know where to apply for a job. You’ll need that guaranteed, defined benefit, indexed to inflation for life pension. And those may be hard to come by these days as governments are also doing the math on funding or backstopping those options.
Most will use that F.I. and ditch the R.E. And most will admit to that reality. They just want that freedom to do more of what they want in life with respect to leisure and travel and work. And that’s why I am a big fan of the movement. It is based on a wonderful end game (freedom) and it employs some more than important financial basics, behaviour and lessons.
You build wealth by living beneath your means. Here’s my personal finance book. OK, you may notice, it’s a blog post. Who needs a book? It all ain’t rocket surgery.
Everybody say FIWOOT!
Jonathan Chevreau calls it all Findependence. That’s perfect. Mark from My Own Advisor frames it nicely with his own acronym …
I prefer Financial Independence Work On Own Terms (FIWOOT) versus FIRE The Financial Independence Retire Early (FIRE).
Here’s Mark’s Weekend Reads.
Dance with the one that brought ya?
The greatest mistake within the community will likely be the commitment to an all-stock portfolio. There is that expression that you might ‘dance with the one that brought ya’. But that’s not the case when it comes to protecting your wealth and your F.I.R.E. You’d have to trade in that sexy stock dance partner for an older tried and true model that is much more boring and slow moving. When Mr or Ms boring comes and taps your all-stock dance partner on the shoulder (to change partners) let the all-stock portfolio walk away.
It’s time to slow things down.
Embrace some local and international bonds and cash and gold ETFs, other precious metals greater geographic diversification, commodities, REITs.
Heck, I’m even investing in bitcoin as another form of diversification.
The thing is, there are long periods when stocks simply do not work. There are periods when the traditional balanced portfolio does not work. But don’t listen to me. Do the research. Just as you did the research to gain the knowledge to be able to reach some form of financial independence.
Don’t stop learning. The accumulation stage and the decumulation stage are absolutely two different animals. Know that truth.
Which chart do you want to live?
Here’s two retirement funding scenarios, using that 4% retirement funding rule, inflation adjusted as per the norm.
Yup, the dance partner that brought ya tripped and fell. F.I.R.E OVER!!! btw in case you can’t see the descriptor, the blue line is for boring, red is for the exciting stocks.
Meet F.I.O.
Once again, decide if you want to protect your retirement or financial independence, or not.
Another consideration is that we enter that retirement risk zone much sooner than expected. The risks might start about a decade before the actual retirement date. The days of an all-equity portfolio might be much shorter than what is part of many F.I.R.E plans.
More F.I.R.E resources.
In that Globe and Mail piece there was a quote from Bob at Tawcan. You should certainly check out his blog and journey. Of course in this space I will often mention and link to GenYMoney and eatsleepbreathefi.
You can also check out the Freedom 35 blog.
More Weekend Reads.
In The Sunday Newsletter we see the outperformance of Canadian small cap stocks in certain sectors. Go big or go home? Not necessarily. The letter also includes the weekly wrap up of asset returns and economic reports.
This week on MoneySense I looked at the Redditors war on ‘Wall Street’ Act II. Thanks to Mike Philbrick of ReSolve Asset Management for some help and background on just what the heck is going on.
On Banker On Wheels a very good and punchy – before you invest checklist.
On lowestrates.ca 11 financial experts offer their best mortgage and insurance advice for 2021.
On this site I had a look at the Tangerine portfolio performance for 2020.
Fritz at the retirement manifesto blog asks are we in a stock market bubble? Of course the US market looks a lot different compared to Canadian and International stock markets.
Always a useful message or reminder, the Norbert’s Gambit on stocktrades.ca. How to exchange CAD dollars to US dollars.
For Million Dollar Journey I penned Investing in Canadian Telco Stocks.
Mike the Dividend Guy looks at the communications sector. There is more than just wireless.
Thanks for reading. Have a great Super Bowl Sunday. Please offer your thoughts in the comment section. What’s your take on the F.I.R.E. movement?
Use that Subscribe button to follow this blog.
Follow me on Twitter, where I Tweet too much.
Cut your fees, support Cut The Crap Investing.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads and easy to read.
Check out EQ Bank for those who want to make their cash work a lot harder. The current high interest savings account rate is 1.5%. EQ Bank recently introduced RRSP and TFSA accounts with a rate of 2.3%. You’ll also find GICs.
I also have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio ,Wealthsimple, Nest Wealth and Questwealth from Questrade.
At Questrade, Canadians can buy ETFs for free.
I use and I’m a big fan of the no fee Tangerine Cash Back Credit Card. We make about $55 per month in cash back on everyday spending.
Dale
Hi Dale – Can you please further elaborate what that graph is? Is there a reason for only using 1 starting point? Have you analyzed say a 80/20 portfolio that covers a broad based index over multiple starting points? There are many studies out there that have and have shown why the “4% rule” works. (Personally I use a sub 4% withdrawal in our plans but see why 4% works.)
I think one of the biggest misconceptions those who have not gone down the FIRE rabbit hole themselves and just making projections misunderstand is that we are not robots. We are humans and as humans, we are flexible. We are a highly motivated bunch who, like you mention, in all likelihood will end up doing something later on. Maybe there’s a 5 year gap of nothing but soaking in all that freedom but it’s likely there will be some sort of side gig along the way – helping others reach FI, picking up a local paper route, part time gig at a local coffee shop, etc. Maybe not.
We also are very in tune with our finances and likely would be willing to make some sort of adjustments if there is a major market dip. I believe building in many one off contingencies should be built into your FIRE number for unforeseen circumstances that can come up later on. The idea is that in all likelihood you’ve built up a beefed up nest egg in which you can chop out say $100-500/mo if you do see a dip to help with sequence of returns risk.
Overall, the whole point is to design a happy life along the way so that once you do reach FI life is quiet enjoyable. If you want to shift down to part time for a year or two as a transition period, great. If you want to pick up some shifts over the winter and have 9 months off a year, great. Key word – Optionality. And I think that’s what we’re all seeking. And if you can do it in a shortened time frame, why not?
Hi, that was an all-equity US stock portfolio vs a Balanced Portfolio that held bonds, gold, commodities and REITs along with the US stocks and International stocks. The portfolios funded a 4.2% spend rate inflation adjusted.
“We also are very in tune with our finances and likely would be willing to make some sort of adjustments if there is a major market dip.”
As our friends at Mawer Investments say – ‘You don’t fix a ship in a hurricane”.
It’s too late by then. We prepare in advance.
Thanks for stopping by. I will follow up with additional posts.
Dale