FIRE (Financial Independence, Retire Early) Movement adherents believe in saving and investing aggressively while being explicitly and deliberately frugal. The end goal is to become financially independent and retire young. Most of its adherents are also fans of low-cost, passive investments such as index mutual funds from Vanguard and other discount brokers.
The S&P 500 fell nearly 30% in the first quarter of this year, and many critics of the FIRE Movement were ready to declare it a failed idea. However, with fuel from the stock market's subsequent recovery -- as well as it's impressive rise to new heights -- I'd wager that the movement has gained followers throughout the turmoil of the past year. Looking toward 2021, the FIRE Movement is not only in a position to survive but also thrive in the new year.
The pandemic has caused a reckoning
Most people, at one point or another in their careers, find themselves in employment scenarios that they deem less than desirable. Alternatively, perhaps they have experienced something in their lives that makes them reevaluate the use of their time, such as the death of an immediate family member or an unfortunate medical diagnosis.
These events inevitably make us contemplate our mortality and reconsider the ways in which we spend our days. Are we really enjoying our lives? Is our work meaningful to the world? From a personal finance view, these adverse occurrences can spur a desire to grow a nest egg large enough that it becomes unnecessary to spend time accumulating more money. This line of thinking forms the basis of FIRE.
The reality is that money is simply a tool that allows us to have more choices and more security. With more security, reliance on an employer decreases, and the opportunity for one to use their time as they see fit becomes more available.
The FIRE Movement comprises an eclectic group of people who acknowledge this reality by making saving and investing a higher priority than almost anything else. Throughout the pandemic, which was defined by the loss of employment (and more saliently, the loss of life), FIRE adherents were among those best-positioned to handle a lost income source or adverse financial event. For this reason, I'd venture to guess that the FIRE movement will have gained strength going in to 2021 and beyond.
Work-from-home culture and FIRE
The events of 2020 have spurred major changes to the workplace, and the ways in which we work have undoubtedly changed forever. While some FIRE adherents literally want to retire when they're 35, many also strive for the "FI" part of FIRE and then continue to work in some form but on their own terms.
Working from home comes with significant benefits and efficiencies, one of which is not having to commute every day. I speak for myself, but a long commute to sit in an office for most of your life is likely not going to be an ingredient for a happy life. The new digital culture in which we live is likely to add great lifestyle benefits -- more time to sleep, exercise, and practice self-care -- for those who choose to telecommute.
A new way of thinking about life
At its core, FIRE is also a rejection of the standard trajectory of life -- or at least, the one that's modeled frequently and has persisted for many of the past several decades. It resembles this: Go to a four-year college, get a job, stay in that job, and then retire when you're 65 and can collect a pension or Social Security.
In today's reality, none of these are guaranteed, and some of them may not even be recommended for some people, depending on your career inclinations. A FIRE mindset allows you to opt out of some or all of these steps and live life on your own terms. I struggle to think of anyone who wouldn't benefit from thinking along these lines.
FIRE members (there's no official membership, but go with it) were likely not phased by the market downturn this past March, and most, if not all, used the opportunity to continue investing regularly. People who strive to be financially independent know that panicking during periods of volatility is not the appropriate reaction, and eyes should be on the long term for optimal investing results. This strategy turned out to be the right one for 2020, and given the expanding nature of the broader economy, appears to be the right one for the years going forward.
FIRE and the 2020s
The core tenets of FIRE -- independence, self-sufficiency, frugality, and low-cost investing -- are great approaches to thinking not only about investment planning but about life, in general. Given that these concepts won in 2020, investors and non-investors alike should consider them in the process of moving the world forward.
It's really worth thinking about why FIRE still makes sense in the years following the pandemic, and why the ideas underpinning the movement make for a more innovative society.