Any here subscribe to the FIRE mentality?

[One2Grift]

I'm not a FIRE aspirant but I do make my living through financial markets. So I have a few comments that will affect you after you reach whatever your trigger number is:

• Think about your and your spouse's life expectancy. If, say, you want to stop earning salaries at age 35, you could very well need your money to last 50 years or more.
• Stock market returns are lumpy. In other words, the annual return of 6%-8% you often hear about is an average. Your asset allocation and strategy need to be able to withstand big, potentially multi-year dips.
• If you live in the US, be sure to factor in how much health insurance will cost you. Individual insurance (as opposed to insurance obtained through an employer) is very, very expensive for relatively minimal coverage.
• When you rely on investments for income, you have to approach tax planning and payments much differently than when you're a salaried worker.
• If you don't know much about personal finance, economics, and finance, you will either have to learn or pay advisors. Advisors' fees can be expensive both in the short term and, especially, over time.
• Families with high levels of assets will not receive much financial aid from colleges and universities.

All excellent points especially the oft overlooked medical insurance.

One other I would suggest considering is the location one chooses to live and its cost of living ratio. Living in Honolulu Hawaii or Pacific heights in San Francisco is a sizable difference to exurb of middle sized town USA.

A low cost of living area without a mortgage? The amount needed to live relatively well is a much more comfortable target. And it means one's income can be kept at a more....bureaucratic cooperative way

 

[pshufd]

I sympathize with the movement. Our savings rate was high and our expenses low so we did that without specifically having FIRE as a goal. I haven't been working for almost a year and it's gone by pretty quickly and I'm amazed at how busy I am without a job. Some of the things that help are being able to manage money. Living through several crashes and recessions helps as you have sufficient skepticism to temper the natural desire to go with the crowd in times of bubbles.

The roaring bull market since 2009 has many extraoplating past gains into the future. And that usually leads to a lot of tears.

 

[dukebound85]

I always have to remember my ultimate goal when I get tempted by the latest gadgets (this time the MacBook pros)

I must remind myself my machine still works phenomenally well still

Upgrading for sake of upgrading is what will kill this dream of FIRE

meanwhile, I will continue to use my secondhand devices I buy used from others

 

[Richard8655]

I think generally the FIRE approach works. A major obstacle for US folks is healthcare before government coverage (Medicare) kicks in at 65. Having employer-based retiree health coverage before then is ideal, but harder and harder to get as even employer retirement pensions are rapidly disappearing. Canadians, Brits, and most EU citizens don't have that worry.

 

[edvj]

Links to some FIRE communities.

Mr. Money Mustache

Early Retirement through Badassity

www.mrmoneymustache.com

https://earlyretirementextreme.com/

r/Fire

FI/RE (Financial Independence / Retiring Early) is a money strategy that's sweeping the nation. It's not easy, but it is simple: earn more, spend less, and use the difference wisely. Build a baseline of financial security with the difference first, then use it to invest for your future. That way...

www.reddit.com

 

[KaliYoni]

Apple’s big product circus today reminded me of this thread. I think that even if you closely manage your burn rate, 2022 has been tough for FIRE so far. Stocks down big, high inflation, tight monetary policy, a European war…ugh!

 

[dukebound85]

Apple’s big product circus today reminded me of this thread. I think that even if you closely manage your burn rate, 2022 has been tough for FIRE so far. Stocks down big, high inflation, tight monetary policy, a European war…ugh!

Yes it has. Depressing to keep contributing to accounts and they keep falling

 

[pshufd]

Yes it has. Depressing to keep contributing to accounts and they keep falling

Liquidate them.

The Fed indicated that they are planning to raise rates above 4% and then hold them there for 2023. There are also indications that they are looking for an unemployment rate of 6%. Ten-year yields were at 3.5% earlier this year and they are at 3.3% right now. If they get to 4%, family offices will sell stocks and buy 10-year and 30-year Treasuries.

UUP ($US dollar index) is up about 19% this past year. An easy bet to make know that the Fed was planning on raising rates aggressively this year.

Europe is currently in a huge mess right now because they have severe energy shortage problems and we're heading into the fall. Their industrial base is going to have to manage with lower production because of energy issues. They may have to produce more things in China because China will take energy from Russia. But China has a massive number of people in lockdown right now and there is huge uncertainty there. The soaring dollar is also making our stuff, including Apple products, much more expensive in other countries.

We still have a ton of risks to the economy. One safe way to play it? Go to cash and plow back into the market when the Fed starts cutting rates.

 

[KaliYoni]

Go to cash and plow back into the market when the Fed starts cutting rates.

So you're in favor of moving to 100% cash. What is your view on going even more defensive (say, by going all cash, selling short major market index ETFs, and buying put options)?

 

[pshufd]

So you're in favor of moving to 100% cash. What is your view on going even more defensive (say, by going all cash, selling short major market index ETFs, and buying put options)?

Shorting carries volatility risk that the typical investor probably isn't used to.

I have a post in MacRumors on another thread (the Apple stock thread I think) that said to go to cash at the beginning of the year.

 

[NathanCH]

Are you close to retirement, pshufd?

Liquidating your portfolio is bad advice for most people. Especially if you're FIRE minded.

The market is down, and there is no shortage of doomsday prophets telling us it will go lower. If anything, you should be increasing your contributions now. Not waiting for the market to go lower.

 

[pshufd]

Are you close to retirement, pshufd?

Liquidating your portfolio is bad advice for most people. Especially if you're FIRE minded.

The market is down, and there is no shortage of doomsday prophets telling us it will go lower. If anything, you should be increasing your contributions now. Not waiting for the market to go lower.

I retired a few years ago. 3 month CDs are paying 3.5%+. Good place to hangout until the market bottoms.You don't need prophets. Just pile back in when the Fed starts cutting interest rates.

 

[pshufd]

I started buying CDs today. 6 month and 3 years. The Fed has indicated that they will get to 4.4% by the end of this year and expect to get to 4.6% next year and hold it there. Rate cuts are 2024 at the earliest and I heard some chatter about 2025. They haven't started Quantitative Tightening in earnest yet. When they do, it will suck out additional liquidity. 4% returns are where family offices start liquidating equities and putting the proceeds into CDs, Treasuries or Agencies. Again, I recommended liquidating at the beginning of 2022.

 

[KaliYoni]

The Fed has indicated that they will get to 4.4% by the end of this year and expect to get to 4.6% next year and hold it there.

For anybody thinking about rotating from non-cash assets to cash, don't forget interest is taxed differently than capital gains. I would also recommend looking into the FDIC insurance rules; coverage is not per account but by total assets held at an institution.

 

[pshufd]

For anybody thinking about rotating from non-cash assets to cash, don't forget interest is taxed differently than capital gains. I would also recommend looking into the FDIC insurance rules; coverage is not per account but by total assets held at an institution.

If it's in a 401k or IRA, the taxation treatment is the same.

If you have a Fidelity IRA or brokerage account, and go into Fixed Income and then CDs, they give you a marketplace of CDs and you can buy $200K at a time from multiple banks in their CD marketplace.

Treasuries are also an open but I haven't traded that because there were significant fees the last time I looked. It was $50 per bond way back in the 2000s. Agencies are looking pretty attractive too. You're just not getting the highest rate right now so perhaps a structured approach to capture current high rates and then capture higher rates later this year and next year.

Hedgeye and 42 Macro are both forecasting a deflationary environment through 2023Q2 while the Federal Reserve is talking hawkish through 2023. They are both predicting deflation in most major global markets as well.

 

[KaliYoni]

According to this article, some people are altering their approach to FIRE:

https://www.nytimes.com/2022/09/24/business/millennials-retirement.html

 

[pshufd]

I'm hearing rumors of UK pension funds going insolvent because of margin calls on leveraged bond positions. I can't imagine why pensions funds would use such instruments. There has to be someone or someones big blowing up given how bonds are getting killed around the world. That carnage is seeping into the equity markets now.

 

[KaliYoni]

I can't imagine why pensions funds would use such instruments

When interest rates were zero or negative, a lot of managers were chasing yield. There are plenty of examples, both retail and institutional, of people putting money into stuff that's getting killed now.

Further, at least in the US, there is a long history of naïve, inexperienced, corrupt, or just plain greedy public pension fund managers–especially at the city and county level–getting sucked into assets and instruments they don't have the knowledge or resources to evaluate properly. Plus when elected officials meddle in asset selection and allocation by imposing politically motivated bans and mandates, chasing yield becomes an even bigger problem.

 

[pshufd]

When interest rates were zero or negative, a lot of managers were chasing yield. There are plenty of examples, both retail and institutional, of people putting money into stuff that's getting killed now.

Further, at least in the US, there is a long history of naïve, inexperienced, corrupt, or just plain greedy public pension fund managers–especially at the city and county level–getting sucked into assets and instruments they don't have the knowledge or resources to evaluate properly. Plus when elected officials meddle in asset selection and allocation by imposing politically motivated bans and mandates, chasing yield becomes an even bigger problem.

These are professionals though. It looks like the UK Government is going to be buying those bonds so it may be a bailout.

One of the pitfalls of managing OPM I guess. You don't take as good care of OPM as your own account.

 

[pshufd]

I covered my shorts pre-market today. I should have held them but there's a lot of peace of mind in booking profits and just sitting in cash. I put in another order for a tranche of the 10-year CDs at 4.8%. I'm just nibbling as rates rise. I suspect that we're going to need to get to 5% on rates to slow the economy down.

 

[KaliYoni]

I put in another order for a tranche of the 10-year CDs at 4.8%.

On the other hand (and of particular importance for FIRE acolytes with, say, 10 years or more to go before their target date or people who are making contributions to a retirement account on a regular schedule):

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/dont-miss-best-days.pdf

and

"Historically, six of the ten best days in the market occurred within two weeks of the ten worst days.
According to J.P. Morgan, an investor with $10,000 in the S&P 500 Index who stayed fully invested between Jan. 4, 1999 and Dec. 31, 2018 would have gained about $30,000. An investor who got out of the market and therefore missed 10 of the best days in the market each year would have under $15,000. A very skittish investor who missed 30 of the best days would have less than what they started with—$6,213 to be exact."
https://www.investopedia.com/articles/investing/021116/3-reasons-not-sell-after-market-downturn.asp

 

[pshufd]

On the other hand (and of particular importance for FIRE acolytes with, say, 10 years or more to go before their target date or people who are making contributions to a retirement account on a regular schedule):

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/dont-miss-best-days.pdf

and

"Historically, six of the ten best days in the market occurred within two weeks of the ten worst days.
According to J.P. Morgan, an investor with $10,000 in the S&P 500 Index who stayed fully invested between Jan. 4, 1999 and Dec. 31, 2018 would have gained about $30,000. An investor who got out of the market and therefore missed 10 of the best days in the market each year would have under $15,000. A very skittish investor who missed 30 of the best days would have less than what they started with—$6,213 to be exact."
https://www.investopedia.com/articles/investing/021116/3-reasons-not-sell-after-market-downturn.asp

Cherry picking dates. How are the results after a secular bear market?

The 10-year CDs are callable. The Fed has said about 4.0 - 4.4% by the end of 2022 and maybe a few more in 2023 and then hold for a year. So they would cut rates in 2024 at the earliest. When that happens, the banks will call the CDs and then sell them at lower rates.

The Fidelity hypothetical scenario doesn't talk about the trader that went short at the beginning of the year and is just holding the position.

 

[KaliYoni]

This recent commentary made me think of this thread:

If your friends are encouraging you to invest as soon as the Fed stops hiking, don’t listen. That’s just not what history tells us to do. Keep this basic understanding in mind as you read on: The high-yield bond market is a leading indicator of the stock market; the stock market is a leading indicator of the economy. In that order.

Since the stock market leads the economy, bear markets have always begun prior to the start of a recession. Additionally, bear markets have never ended before a recession has started. So, where are we now? It’s like a long car ride with the kids. Turn toward the back seat and tell them, “No. We’re not there yet!”
[...]
For everyone getting excited about the potential for the Fed hitting the rate hike pause button—let alone a reversal (Fed Pivot)—keep this top of mind:

Historically, the stock market bottomed approximately 14 months after the last Fed interest rate hike.
It does not appear the Fed is done.
There were shorter periods than 14 months, but another bear market followed every single short-term bull rally.
Source: On My Radar

While I'm not an expert or trader in bonds nor a market timer, I agree that using the Fed's actions as an invest/withdraw signal is not a great path for most individual investors for qualitative reasons, including market efficiency combined with the difficulty in deciphering Fed-speak for non-professional Fed watchers.

 

[pshufd]

Great time to be earning interesting in money market accounts and CDs.

 

[MacBH928]

This recent commentary made me think of this thread:

If your friends are encouraging you to invest as soon as the Fed stops hiking, don’t listen. That’s just not what history tells us to do. Keep this basic understanding in mind as you read on: The high-yield bond market is a leading indicator of the stock market; the stock market is a leading indicator of the economy. In that order.

Whats the idea to invest once the hiking stops? interest will go down, people will take loans, money will start to flow?

Why are bonds indicator of stock market? Governments take higher interest loan (bond) when the market is doing well?

Great time to be earning interesting in money market accounts and CDs.

I thought interest is in all time low!? yes I am out of the loop