Financial Independence, Retire Early (FIRE) Is Still Hot

In this podcast, Motley Fool senior analyst Bill Mann discusses:

• The market's reaction to Fed Chairman Jerome Powell's testimony in front of the U.S. Senate Banking Committee.
• Shares of Dick's Sporting Goods popping 11% on same-store sales growth that more than doubled expectations.
• How inventory management is a key in Dick's Sporting Goods' recent success.

Motley Fool host Alison Southwick and Motley Fool personal finance expert Robert Brokamp talk with Megan Brinsfield, Motley Fool Wealth Management director of financial planning, about the Financial Independence, Retire Early (FIRE) movement.

Motley Fool Wealth Management ("MFWM") is an SEC-registered investment advisor. MFWM, an affiliate of The Motley Fool LLC ("TMF"), is a separate legal entity, and all financial planning and discretionary asset management services for its clients are made independently by the financial planners and asset managers at MFWM. No TMF analysts are involved in the investment decision-making or daily operations of MFWM. MFWM does not attempt to track any TMF services.

Megan Brinsfield is the director of financial planning at MFWM. The comments and ideas presented by the speaker in this podcast are solely those of the speaker and do not necessarily represent those of MFWM or any of its affiliates. This discussion is for informational purposes only and should not be construed as investment or financial planning advice or recommendations. Certain statements may be deemed forward-looking, however, there is no guarantee of any outcome. Past performance does not guarantee future results.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on March 7, 2023.

Chris Hill: When the Fed Chief speaks on Capitol Hill, Wall Street is listening, Motley Fool Money starts. Now. I'm Chris Hill joining me in studio. Yes, in studio it's Motley Fool Senior Analyst, Bill Mann. Thanks for being here.

Bill Mann: I can't believe it. I wouldn't want to be any place else.

Chris Hill: Yeah.

Bill Mann: The decorating leaves a little too.

Chris Hill: We won't dwell on that because the dozens of listeners can't see the decor, and decorating is an air quotes. I want to get to some surprising earnings in a minute, but you and I are sitting in a studio in Alexandria, Virginia and across the Potomac river on Capitol Hill, Fed Chief Jay Powell is spending a pleasant few hours with a group that I like to call the United States Senate Banking Committee. The headlines so far is Powell saying that despite all of the rate hikes, they're going to need more aggressive interest rate hikes because the economy is still hotter than they thought it would be when they started raising rates in the first place.

Bill Mann: Chris, I have a question for you. Do you feel like you'll learn anything from when the Senate Banking Committee takes on the Fed Chairman?

Chris Hill: I feel like it is almost a test of the various senators. Almost like a personality test and it's whether you mean to or not your questions and sometimes they're asking questions and sometimes they're just making statements pontificating before they get to their questions. You are whether you realize it or not, senator, unwittingly revealing yourself in a way to the investing public that may reflect well on you and may not reflect well on.

Bill Mann: In this case, whenever they referred to the people, it is first-person singular. Yeah, this is not a day for revelations. It's a day in order to for the senators to invoke their priors and I think it's really important for people to understand. Exactly what power the Federal Reserve has and how it actually manifest itself in the US economy. Because there is sort of the immediate impact, which is psychological, but then there is the impact that is actually important and that is structural and that takes months to manifest itself.

Chris Hill: And yet, here we are with the market reacting. I mean, you're right. There weren't really a lot of revelations. And yet about the time Powell started speaking out loud about more aggressive interest rate hikes coming. That's when the market turns south.

Bill Mann: Yeah, oh, this is going to be good, this is going to be bad, but just keep in mind that it's a good nine months because what we're talking about here is relative risk-adjusted returns and what we're talking about cost of capital. And so everyone wants the cost of capital to be as low as possible. I mean, it's great to be able to take whatever risk you want and not have to pay for it at the end of the day, it's like all banks are up that company and set up another one just like it. The reality right now is that is what the Federal Reserve is fighting against is inflation. Inflation, or inflation is something they actually want to have some, but not a lot of it's like salt. I guess. You want a reasonable amount of salt and the only thing like with soup, the only thing worse than soup that's too salty is soup that's not salty enough.

Chris Hill: Yeah. Bland.

Bill Mann: Exactly. Just to completely infantalize what's actually happening across the river, we are talking about making sure that the soup is rightly salted. But you do have to make these decisions way before the market sees or feels that. So 2022 turned into one of these really strange years and we've had them before, which was economic news that was too good, for the market was bad news because the Federal Reserve was taking away the liquidity that we all as citizens of this country benefited from and then eventually were hurt by because of the inflation that finally came to bear.

Chris Hill: Right. It wasn't just the companies. We as investors and we as consumers.

Bill Mann: No, exactly. Yeah, and the weirdest thing about it, and this is why we talked about the psychological versus the structural. Because you would think the moment that interest rates are raised, that makes things like credit card debt more expensive because everything is set from the risk-free rate, they're all index to that. But you tend to see credit card use go up in credit card debt rates, excuse me, the credit card and the amount of aggregate credit card debt to go up for reasons that are probably more psychological than they are structural. So we're just getting into the structural part. I just wanted to make that statement because we do need to keep in mind that what the Federal Reserve has is about as precise as a wrecking ball. I think people tend to think of it as being scalpel, you know, or a plasma knife, No, they've got a big thing. It's like that Gorilla swinging the suitcase and the Samsonite commercials.

Chris Hill: As I said, the comments from Powell sent the broader market into negative territory, and yet shares of Dick's Sporting Goods up 11% after same-store sales in the fourth quarter were more than double what analysts had expected. Their guidance for 2023 was strong. Where do you want to start?

Bill Mann: The CEO might as well have started out and said my name is west. And again in this mess because they turned in unbelievable returns. And I think the important thing is to put the Dick's Sporting Goods results into context. This is on top of four consecutive years of record revenues. You're not talking about weak comparables. You're talking about comparables that were.

Chris Hill: Years or quarters.

Bill Mann: What did I say?

Chris Hill: You said four consecutive years?

Bill Mann: Let's say quarters. Yeah, that's fair. Might as well be years. I mean, since we're reacting to the Federal Reserve, sneezing one direction or the other.

Chris Hill: Time is a flat circle. No, you're right.

Bill Mann: Francis Bacon.

Chris Hill: It's been an incredible year for Dick's Sporting Goods, and I'm curious, you know, what stood out to you? Because one of the things that stood out to me specifically was their same-store sales guidance for 2023. So we'll come back to that just in terms of how this business is performing. I mean, this is one of the better holiday quarters that we have seen this earnings season from a retailer?

Bill Mann: It is, I'd say that the thing you and I have had the opportunity to talk about two companies recently and they're not quite in the same space as Dick's, but Home Depot and Lowe's, just talking about inventories and talking about the uncertainty of pricing. Well, Dicks had a sales increase of 41% overall, but their inventories were lower, as, you know, a function of sales. So the inventory slowed in terms of growth as a function of sales. And even though they had high promos, their margins went up. So what you're seeing from Dick's, and I don't want to extrapolate too much, but they got their mix right and they got their inventory right? And some of that is, some of that is guessing, but some of that you have to lay down to Dick's having a really good sense of who their customers are and what they're interested in?

Chris Hill: Well, no and to go back to Home Depot, and Lowe's, you can put Target and Walmart in there as well. I mean, Dicks is dealing with inventory. They've had a better 12 months of dealing with inventory.

Bill Mann: Exactly.

Chris Hill: Those others in terms of the guidance that same-store sales guidance for 2023 that Dick's Sporting Goods gave was flat to positive 2%. And this is something that we've seen to varying degrees with some of those other retailers that we mentioned where it's like, yeah, it might be negative 1% to positive 1%, that sort of thing. To what do you ascribe that like is that just were being abundantly cautious as a group across the board. And who knows maybe part of it for Dick's Sporting Goods was they're going late. They get to see what other retailers going early.

Bill Mann: There cheating up the other keeps papers.

Chris Hill: They're just saying, wait a minute, who knows? Maybe their guidance was going to be a little bit higher and they said, let's take it down just a little bit. I mean, one of the thoughts that goes through my mind is, what's informing this caution is the unclear picture on inflation. When part of the story for Dick's and those other retailers we mentioned has been higher ticket prices because they've been able to charge more. It's not more traffic in the store necessarily.

Bill Mann: The baskets are more expensive

Chris Hill: That's doing the heavy lifting. It's the baskets are more expensive.

Bill Mann: Yeah. It's a great question and I always do wonder about when you see an outlier like this because you're right most of them have said, we might be a little negative, we might be a little bit positive, but Dick's has at least put the lower bound on we will be neutral. I think maybe that has to do with their having a sense of confidence, having managed their inventory so well that they know that they don't have to go to promos to move out old inventory so they're not sitting on the 2,023 equivalent of 10,000 Furby's, that they don't know what to do with. Their inventory management has been right and it has been tight and I think the thing that leads the most credence to that, and I'm going to just lean into the theory that I'm coming up with while we speak, was the fact that they increased their dividend by 105 percent to $4 per share for this year, which suggests not only have their earnings gone up, but they feel like their cash requirements are lower, such to the point that they can return a much higher amount of capital to shareholders.

Chris Hill: That's a serious dividend hike.

Bill Mann: It is and you see that a lot of times when companies have newly instituted dividends, they're like, we'll go from two pennies to four pennies. Oh, 100 percent, $4 per share and not to say that a share is a share, but it is a substantial yield for the company at this point. That to me, says as much about their confidence about the quality and the security of where they believe Dick's is at this point.

Chris Hill: Bill Mann good to see you. Thanks for being here.

Bill Mann: Nice to be here in studio.

Chris Hill: You may have heard of FIRE, Financial Independence, and Retire Early. But that's just the first kind. Alison Southwick and Robert Brokamp look at the new flavors of fire and what it takes to become financially independent.

Alison Southwick: In the beginning, there was the FIRE movement. FIRE stands for Financial Independence, Retire Early. It can be traced back as far as 1992 and the publication of Your Money or Your Life by Vicki Robin, and Joe Dominguez. But it really took off after the Great Recession of 2007, and 2009 and since then, all sorts of FIRE spin-offs have been created. Here to explain them is Megan Brinsfield. She's the Director of Financial Planning for our sister company, Motley Fool Wealth Management. Welcome, Megan.

Megan Brinsfield: Thank you. I'm excited to be here and I brought my favorite tag-along friend, all of my disclosures that I travel with so just keep in mind that I do work for sister company Motley Fool Wealth Management, and all our operations and investment decisions are made separately from the Motley Fool. My comments represent my own thoughts, not necessarily those of Fool Wealth or its affiliates. Finally, keep in mind that this conversation does not constitute investment advice so if you do need personal advice, reach out to a professional.

Alison Southwick: Fine. Glad we got that out of the way. All right. Let's start by you telling us about how you got interested in the FIRE movement.

Megan Brinsfield: Well, I've always been a little saver. I always saved my allowances growing up and I really took pride in putting away my money for a rainy day, a future, etc. I stumbled upon the Mr. Money Mustache blog. It was actually right before I started working at Fool Wealth and it was talking about the simple math behind early retirement, it was based on the four percent rule. I basically saw all these ways I can level up my savings game and I was down for the challenge. I ended up in very rapid succession moving much closer to work so I went from a 20 ish mile commute to a one-mile commute. I went from living by myself to having roommates and I bought a bicycle. If you have ever read Mr. Money Mustache, this is his life-changing advice, it is to buy a bike and use that to commute everywhere.

Robert Brokamp: A big part of it really is just being very smart where they're spending, bring it down and saving an awful lot of money. It's interesting that we're actually still talking about the FIRE movement because the last three years have been rather extraordinary. We had the pandemic and a recession and I remember there were some articles that came out in March of 2020 saying this is going to kill the FIRE movement and then last year we had a bear market in both stocks and bonds as well as high inflation. You also saw some articles saying that, oh boy, those FIRE folks are in trouble. But from your vantage point, Megan, how is the FIRE movement changed if at all over the past few years?

Megan Brinsfield: What I've seen is actually more of a focus on flexibility over the past three years, there's also been a lot of news about the great resignation within Gen X specifically, and I think within FIRE circles, I've seen that even more that whatever savings they had accumulated thus far gave them a little bit more flexibility such that for example, if they didn't have access to child care during the pandemic, one spouse or a partner might be able to forego work or decrease their hours because they did have that better financial backstop. Also, the increase in remote work and remote capabilities means that people could change the calculus on how much they need in their annual budget in order to make FIRE work for them especially if they were able to move to a lower cost-of-living area. You saw a lot of the population moving away from high-cost cities like New York and San Francisco to lower-cost-of-living areas. I won't say that's all the FIRE movement, but I do think it gave people some levers that they didn't have access to but in the past.

Alison Southwick: There are many different kinds of FIRE. Let's go through them here really quickly and maybe Megan, you can define them for us, there is FatFIRE.

Megan Brinsfield: FatFIRE is mostly consisting of people that want to spend $100,000 a year or more, so fat meaning a fat budget every year. These folks try to accumulate at least $2.5 million to generate that $100,000 a year.

Alison Southwick: How about Lean FIRE?

Megan Brinsfield: Lean FIRE is the other end of the spectrum. You are typically doing a lot more budget conscious maneuvers so that you're spending very little. You probably have either housing paid off or your house hacking or something like that. The prominent example in the Lean FIRE space is like the Mr. Money Mustache group that spends about $25,000 a year. They have to amass a lot less in terms of total invested capital in order to meet their budget needs every year.

Alison Southwick: All right. How about Coast FIRE?

Megan Brinsfield: Coast FIRE is where you've actually reached a point where your savings can just compound until the traditional retirement age. Savings becomes optional at that point and so a lot of folks are able to either take a step down in the number of hours they're working, take a lower paying job, work seasonally, things like that.

Alison Southwick: All right. Barista FIRE.

Megan Brinsfield: Barista FIRE is where you get a job, usually a part-time job just for the benefits. You just want maybe healthcare coverage or maybe access to a 401K or some equity options, things like that. But usually, healthcare is a big motivator for people in Barista FIRE where it's like that might be a very large expense in your budget so if you can just work enough to get that paid for, it really reduces the stress on your savings.

Robert Brokamp: I suppose a big difference with all of those is really how much you're going to save and your overall time horizon. But are there some court precepts that underlying most or all the flavors of FIRE?

Megan Brinsfield: I think there are some financial precepts. Definitely, the four percent rule is very highly relied upon as a starting point. There's definitely additional research and discussion out there because the four percent rule, as you know, is based on a 30-year time horizon. A lot of folks who are over time retiring early are going to have a much longer time horizon than that 30 years if they totally stop working. But that is a starting point for establishing a target. A lot of folks in the FIRE movement rely on index funds or total market index funds as an investment vehicle, just mainly focusing on low-cost strategy is to stay invested in the market. Then just from a spiritual standpoint, people want the flexibility to sing that old song, take this job and shove it if they reach a point where they just can't handle it anymore and have the flexibility to walk away and that really is the freedom of FIRE.

Megan Brinsfield: These days you often hear folks talk about more of the FI.

Alison Southwick: The RE is getting dropped here. What about that?

Megan Brinsfield: Yeah, there's definitely a focus on financial independence more so than hitting any eject button from the workplace. A lot of the research out there talks about that early retirement might not actually be great from a social and brain stimulation perspective and so the RE is really becoming redefined whether it's like restart again or whatever, that's a Rob, but whatever acronym you want to replace in there, like reimagining your career, what have you, a lot of the media around the FIRE movement has really just dropped the RE.

Robert Brokamp: Yeah, you're talking about people questioning whether actually in the end it was worth it. I'm sure there are plenty of people who have tried FIRE and then realized it really wasn't for them. Have you heard or read about any FIRE failures?

Megan Brinsfield: The one that comes to mind, I actually got to interview this blogger a while ago is Financial Samurai. He runs a blog and he retired early in the San Francisco Bay Area, has kids and he was definitely in the flat Fire category. He wrote a whole blog about how he was an early retirement failure and a number of reasons why, but definitely on the list of reasons came back to social engagement, bond returns, tax policy, mental stimulation, and then just the number of variables that change when you are a younger person, you've just got a longer horizon of potential possibilities and feeling like maybe those all weren't covered.

Alison Southwick: My biggest skepticism with the early FIRE movement came from the feeling that a lot of the FIRE folks were making their living by getting other people to pay them to learn how to retire early. Basically, their job was being FIRE influencers. It's like selling a get-rich-quick book that teaches people how to get rich quick by writing a book that teaches people how to get rich quick by writing a book, it just turtles all the way down. This annoyed me, as Bro knows, is it less like that now?

Megan Brinsfield: There are tons of financial independence blogs. I don't think there's any denying that and it seems like they all have this little pithy name related to the physical FIRE, but I do think it's helpful. There are a lot more conferences popping up where you can meet "regular" people either pursuing or who have achieved FIRE. I actually went to one back in the fall called camp FI and these are all over the country. It's like sleepaway camp. We were literally at like a bible camp. Yes, bunking up at a bible camp. There are a little breakout sessions. There's lots of opportunity for group discussions. Everything from figuring out your number to what's your purpose to what flavor of FIRE do you want to pursue. Yeah, there were bloggers and influencers there, but for the most part, it was normal people without a website. 

Alison Southwick: Though sound more like my notes. Let's close with your recommendations for the best sources of information about FIRE or FI, or whatever for people who want to learn more.

Megan Brinsfield: I think there's a very active Reddit community actually that can be really helpful. The different Reddit threads, the books that we've mentioned here, Simple Path to Wealth and Your Money or Your Life are seen as biblical texts in the FIRE community. That's definitely a good place to start. Then I think from podcasts, choose FI as a great podcast. They incorporate a bunch of different elements of this. They've been around for a while and then they have local Facebook groups as well. Then if you just Google financial independence, early retirement plus whatever phrase that sounds appealing to you, there's early retirement extreme where people retire when they're like 26 and things like that all the way to people who are in their 50s and just are starting over in pursuing FIRE. There's definitely a flavor out there for everyone and it's all in the pursuit of greater financial literacy and optionality.

Robert Brokamp: I'll mention a few. First of all, Your Money or Your Life is a great book, the first time it came out was in 1992, but it's gone through a few editions. Most recent was in 2018. You want to look for that addition. There actually a couple of good movies. One is playing with FIRE, but you want to make sure you get the documentary, not the comedy about firemen. There's another one called minimalism. It's not explicitly FIRE, but I would say it's spiritually the same and that you just realize that you only need a few things in life to make you happy and that allows you to save a lot of money. Then finally, I'll just point out retireearlylifestyle.com and that's the website of Akaisha and Billy Kaderli who retired at age 38, 1991. They are real FIRE pioneers or I guess FIREneers, you might call them and they're still retired and they just came out with a fifth edition of their new book, which you can get at their website.

Megan Brinsfield: Not to be confused with fioneers, which is an actual website of someone completely different.

Robert Brokamp: Someone's already grabbed that one too?

Megan Brinsfield: Yeah.

Robert Brokamp:  Of course, they have.

Alison Southwick: Bro, well, if you were to invent your own flavor of FIRE, what would it be?

Robert Brokamp:  Somewhat tongue-in-cheek, but not really. I would call it quiet FIRE or flat FIRE because it's based on the supposedly recent idea of quiet quitting. Where you're working from home and you do just the bare minimum. You don't actually work extra hard and it gives you a lot of free time. We're supposedly seeing a lot of that these days, I actually know people who actually do this and I call it flat FIRE too, because this is also happening in China. But it's called the lying flat movement, where these younger folks are saying we're tired of working so hard for so little so we're just going to put it in the minimal amount of effort. Quiet FIRE or flat FIRE.

Alison Southwick: Megan, how about you?

Megan Brinsfield: Maybe backfire where you just repeatedly fail at retiring early and go back into the workforce and learn a new job and then do it all over again.

Robert Brokamp:  Love it. Alison, what do you have?

Alison Southwick: Mine is chemical FIRE. You never stop working. But every weekend you take a trip thanks to a psychedelic or otherwise mind-altering drug.

Robert Brokamp: Don't try it at home, kids. Don't try it at home.

Alison Southwick: Just say no.

Chris Hill: As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy yourself stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.