FINANCE

from SIMPLYkc Magazine December 2021

AROUND TOWN

WHAT DID COVID DO TO THE FIRE MOVEMENT?

WRITTEN BY BRENNAN HALLOCK

ABusiness Insider article from March 2020 claimed that the COVID-19 pandemic might turn the FIRE movement into the DIRE movement. Instead of Financial Independence, Retire Early (FIRE), it could become the Delay, Inherit, Retire, Expire (DIRE) movement. Looking back from where we are now, how accurate has this claim been?

The FIRE movement has gained popularity with the millennial crowd over the last couple decades through financial gurus such as Pete Adeney (aka Mr. Money Mustache), Vicki Robin and Joe Dominguez (writers of Your Money or Your Life), and many others. It teaches a way of life that involves what the average American would consider an extreme savings rate (often 40-80 percent of income), and a low-cost lifestyle to fund retirement accounts and reach financial independence (defined as having enough money to fund your basic expenses without working) before—sometimes way before—standard retirement age. But what happens to a movement like this when a once-in-a-lifetime event like the COVID-19 pandemic happens?

I remember sitting in my house looking at my phone last March watching the stock market plunge day after day in amounts I had never seen. In a span of less than a week, my retirement and personal investment portfolio lost over 26 percent. It was intimidating and a little scary, but mostly I remember being excited. Buying into the principles taught in the FIRE movement, I knew this wasn’t just a once-in-a-lifetime crisis, this was also a once-in-a-lifetime opportunity. So I took all the extra cash I had and poured it into my investments.

This sounds crazy to a lot of people, but one of the principles behind the FIRE movement is the belief that the stock market will have consistent recessions, and it will rebound to a higher level after each recession. These bear and bull markets are built into the math behind investing.

If the stock market doesn’t rebound, the money in your bank account won’t be worth anything either, so there will be bigger problems to deal with. Losing your entire stock portfolio won’t be one of them. Based on this belief,

when the stock market drops it is like the investment funds are on sale. And last March they had a once-in-a-lifetime sale.

By May 2020, my investments were back at pre-COVID levels and they have continued to rise nearly every month since. There will be more recessions to come, but to investors these are only helpful.

There are those, however, who already stopped working prior to COVID. For these, the pandemic wasn’t an opportunity but more of a speed bump. Another principle of the FIRE movement is the 4 Percent Rule, based on historical returns for nearly all of the twentieth century (including the Great Depression). It is less of a rule, but more of a guideline that states you can safely withdraw up to four percent of your portfolio every year without withdrawing any of its principal. For example, if you need $60,000 per year for expenses you need to have a portfolio of at least $1.5 million.

For years like 2020, this four percent rule can be a little scary, because you may get very close to withdrawing principal from your portfolio. But this is the reason there is another extremely important part of the FIRE movement that is often overlooked by outsiders. The FIRE movement is not about retirement. It is about financial independence. This means you don’t need to stop working, but you can.

Most people who reach their FIRE goal don’t stop working, they just change how or where they work. They may cut down to part-time work, start their own business, work at a lower-paying job, or work seasonally rather than full-time. It is about the freedom to work how, where, and when you want rather than being chained to a job to sustain your lifestyle. In a year like 2020, people who reached FIRE but were feeling scared because of market instability may have cut back on expenses so they didn’t take as much out of retirement, or they may have picked up more shifts at their jobs to make them feel more stable.

There is one major thing that the COVID pandemic has done to the FIRE movement, though. The FIRE movement was gaining popularity with a larger crowd. A crisis like 2020 scared away people who didn’t fully trust its principles of buying when the market is down, trusting the market to rebound, and pursuing financial independence rather than just wanting to quit a job.

Learn more about the FIRE movement here: www.playingwithfire.co/whatisfire.