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Did The Pandemic End The FIRE Movement?

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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.

The hit from the pandemic on the stock market has shrunk retirement portfolios. I would know, I lost tens of thousands in mine. As bad as that sounds, compare that to Steve Adcock and his wife Courtney who lost about $200,000 with that hit. The pandemic has hit Americans hard in their retirement. One of which is Seth Dogen of Financial Samurai, an advocate of FIRE. He stated that the FIRE movement would be replaced with the DIRE movement (Delay, Inherit, Retire, Expire). I have heard others say that the pandemic marks the end of the FIRE movement.

Retirement Is Definitely Hurt

The general allocation rules states that you should have a percent of your retirement investment equal to 100% minus your age in stocks. The rest should be in bonds and cash with two years of expenses being in cash. Since you will/are contributing to your retirement at hopefully a young age, it would be safe to assume most retirement funds consist of mostly equities. The equities market is not doing very well. People are understandably scared of investing in equities. The Coronavirus pandemic did a good job of trying to end the FIRE movement.

People Focus On The Wrong Things With The FIRE Movement

I like the idea of the FIRE movement. It helps show people how they should invest to become financially independent and not make decisions purely based off their income. However, the effect of the pandemic on the FIRE movement shows that people have been focused on the wrong part of FIRE. They focused too much on the retire early part. If people had a choice between financial independence or retire early, I would bet most people would take the retire early. People may like the idea of no longer working a 9 to 5 and being micromanaged, but it comes at a price.

That is where financial independence comes in. If you want any hope of retiring early you need to aim for financial independence. You may like the idea of lying back on a beach sipping a summer drink. However, no one likes the idea of driving a car that looks older than you, paying off debts, nor working 3 jobs, or starting a platform for a business, to gain financial independence. Unfortunately, many people put the retire early before the financial independence. I think the acronym of REFI shows how much of a mess that makes. That will more likely end the FIRE movement than even the most devastating pandemic.

Problems With Information For The FIRE Movement

Little Focus On Debts

One of the first problems with the FIRE movement that may end it is the fact that the FIRE movement seems to focus almost exclusively on saving. Saving money is never hard. One of the hardest things to do is make your money work for you by investing in assets. It is not the hardest thing to do because everyone knows that investing for retirement is beneficial. In addition, the phrase: “you need to have money to make money” rings loud. It is true even though it is not 100% true.

Pretty much the hardest thing to do financially is to pay off your debts. No one likes paying off their debts. Furthermore, US politics, to me, has turned into a debate of whose debts should be forgiven to buy some voters. Deep down, everyone with debt has hope that they never have to think of their debts ever again thanks to the government.

Paying off debt should always be the first step to financial independence, literally by definition. Financial independence means you do not need to rely on other people much less loaners to uphold. I know some people advocate that those who go into debt tend to make more money. But if that is true, why is debt considered the destruction of wealth. Think of it this way, if a person makes good money, why have they not paid off their debts? Sure advocates of the FIRE movement have stories of paying off their debts. I find far more stories about how they save so much and invest. Paying off debt is just not as glamorous even though it is crucial.

FIRE Tends To Be About Investing, Not About Diversification

One thing I have mentioned before is that many people do diversification wrong. Many people believe that investing their retirement into a mutual fund gives you diversification. It does not. I have invested in equities, both domestic and international, bonds, and REITs. Even those are not enough for a well diversified portfolio. You do not just need a well diversified fund, but other streams of income. If you have only passive investments in a retirement fund you only have two streams of income, at the age of 59.5. Real estate and business tends to be one of the additional income streams people go for. However, these income streams can easily be swayed in the economy too. Employment may seem to be one of the counterproductive points to retiring early. But it is still viable if the only other stream of income is your retirement fund.

The key to diversification is to produce more than one stream of income. If you only have your employment as a source of income, you may find yourself in a situation if you lose your employment. You no longer have income. Why is it that a retirement fund would be any different? If you have a retirement fund invested in passive assets and broad markets have a bad year, you could find yourself with a lack of income.

In order to retire early, you must have income to support your lifestyle even during tough times. It is difficult to do that if you only have one stream of income, especially if it is passive and you have little control over it.

Retirement Does Not Mean Your Worries Are Over

If you read the article about Steve Adcock and his wife, you will see that the hit on their portfolio, while large, is not too devastating. What they did was change their budget so they do not have to utilize their savings as much. Furthermore, they have switched their dividends to reinvest during these troubling times instead of using it for their income. This will allow them to gain more during troubling times.

When you retire (I hope my audience is aiming for that) you should have a few decades after retirement so you are bound to face a recession with it. You will have to face some hardships after you retire. You will have to re-prioritize some things to make sure you retire. At the very least, you may have to change your budget. However, you could also take on a less stressful job, or find some other form of active income such a business to supplement your retirement. Either way, you will need to make some sacrifices.

Final Thoughts

The pandemic may appear to end the FIRE movement, but only if you believe that you can uphold your lifestyle with only one stream of income. Your retirement will not be stable if you have only one source of income. I think some people who try to follow the FIRE movement are now starting to realize that. They will however make some changes in their lifestyle to try again.

Hopefully, you are trying to develop a few streams of income right now to minimize income shocks that will affect your lifestyle. If you are part of the FIRE movement, you may be dissuaded by what is happening. The pandemic did not end the FIRE movement, just smothered it a little. The embers are still burning hot, waiting to reignite.

Author: Papa Foxtrot

Most of my life I was careful with money and learned where I should invest it. I was very lucky to have parents who taught me financial literacy when I was young. Unfortunately, I am very lucky because many people lack the financial literacy I know. The purpose of Forge Your Wealth is to teach people who are just starting out in life how to obtain their wealth or anyone who just realized they may need to learn more to handle their finances. I currently have a PhD in biochemistry, just started a job in industry (will not disclose where exactly for personal and professional reasons) and am currently married to the love of my life. I am one of the lucky few people in America who graduated with no student debts, my wife was not. Over the series of a little over 3 years we paid for our wedding with no debt and paid off her federal student loans.

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