There’s a debate raging around Morningstar at the moment and it centres on the FIRE movement. The philosophy of Financial Independence, Retire Early has gained traction in recent years among people who want to work hard, save hard and then get on with enjoying the rest of their lives.
Our columnists have written hundreds of words on the subject in recent weeks: Christine Benz is a convert to the idea after being initially sceptical, Larissa Fernand thinks there should be more focus on the financial independence and less on the early retirement, and John Rekenthaler wonders how people can really know.
For me, it all starts with one crucial question: how much money do I need to retire?
I first started saving into a pension when I was 22. It was when I got my first job in financial journalism and the company I worked for was offering a generous package and doubled whatever you contributed. My editor at the time taught me the vital lesson that not taking up the offer would effectively be saying no to free money - a phrase I’ve parroted to others thousands of times since.
Still, the sums involved seemed unfathomable to me. My projected retirement age is 68 (and let’s face it, that’ll be going up, especially after Rishi Sunak’s latest spending spree) and the meagre monthly contribution I was making from my salary didn’t seem like it was ever going to add up to much.
The realisation that I was going to need that pot to grow to at least six figures if I was ever going to stand a chance of retiring was almost enough to make me give up. Financial Independence, Retire Early? I’d settle for Not Having to Work Until I’m Well Into My 90s, but that doesn’t shorten down into a catchy acronym like FIRE does.
So, I admire anyone with the ability, confidence and optimism to plan for an early retirement. If you know that is what’s going to make you happy and the you’re confident the sums add up, then there is absolutely no reason not to strive for FIRE. But there’s nothing wrong with taking a slow and steady approach either, as long as you get there in the end.
Expect the Unexpected
I can’t say I envy the job of a fund manager right now. At a time when companies are tearing up any form of forward guidance, fears of a second wave are rife, and there are question marks over whether millions of workers will ever return to an office again, how are you supposed to make investment decisions?
I’ve only checked my own investment account once since the Covid-19 sell-off in March, a few weeks after the event. I remember seeing some red, still feeling happy about the performance of my gold ETF and logging out. At some point, I’ll have to do some tinkering – after a choppy few months it’s a fair assumption that things are probably not in the state in which I had originally intended – but, for now, I’d prefer to stick to the long-term plan rather than start guessing what to buy and sell.
So, when we asked fund managers how they expect the rest of 2020 to play out, they were understandably cautious. There might be a full stock market recovery, there might not. We might have a second term of President Trump in office, we might not. A coronavirus vaccine might be found, it might not. Suddenly making predictions about the stock market is about as reliable as making predictions about the British weather.
Investors often suffer FOMO (fear of missing out) and end up buying once the stock market has rebounded as it has done in recent weeks, not considering whether it may go on to fall again. While the rally could continue if a vaccine is found or economic growth picks up, there are plenty of things that could derail it too.
Ultimately, when even the professionals don't know the answers, it's worth treading carefully and preparing for all eventualities.
Coins and Crims
Cryptocurrency is an asset class I feel uneasy about at the best of times. This week a number of high-profile individuals found themselves at the wrong end of it when their Twitter accounts were hacked.
Their accounts sent tweets to millions of followers asking for Bitcoin donations that would be spent helping local communities, with the celebrity accounts claiming they would match whatever the generous public donated. It’s frightening – and more than a bit depressing – how there is always a fraudster ready to take advantage in a dire situation. What’s more frightening is how many charitable individuals may have fallen for this scam.
While cryptocurrency has started to move into the mainstream, the fact that Bitcoin is all too often a go-to tool for cyber criminals should be enough to warn more anxious investors off.
