What is FIRE?
Financial Independence, Retire Early (FIRE) is a movement focused on extreme savings and investing with the aim of allowing people to retire much earlier than the goal of conventional strategies.
Extreme frugality is at the heart of FIRE. Promoters aim to save significant amounts of their revenue – well over 50% in many cases. This is usually achieved through a disciplined focus on cutting expenses. Raising revenue is encouraged, but recognized as less controllable than ruthlessly cutting spending.
Once their savings goal has been reached, retirees live on small periodic withdrawals. Most would apply the “4% rule” or something similar in order to calculate their savings goal and safe withdrawal amounts. Savings are usually invested almost entirely in equity index funds.
There is an enormous amount of information available on FIRE that is not worth repeating here. You can do your own research, perhaps starting with one of the most popular FIRE bloggers – Mr. Money Mustache.
Good: fire and freedom
The FIRE movement has a lot to offer. Its greatest strengths come from the low time preference behavior it encourages, much like bitcoin. FIRE proponents are willing to sacrifice immediate expense and lifestyle trade-offs for the potential for increased future returns (by accumulating the savings) that will later enable a lifestyle of freedom. The extreme frugality of FIRE goes well with minimalism and there is a degree of overlap between these movements. A common thread is the desire for freedom in its many forms – again something familiar to many bitcoiners. A minimalist lifestyle and mindset can provide a psychological sense of freedom long before retirement is reached. Your possessions cease to be yours and you can focus on the things that matter most to you, even if you haven’t yet fully controlled your time.
The FIRE community is also ruthless in reducing the management fees of its investments, almost always seeking the cheapest options. They will be delighted to learn that bitcoin can be stored virtually free completely autonomously in perpetuity. Even the cheapest Vanguard or BlackRock stock ETF will be more expensive than holding the equivalent dollar value in bitcoins.
The Bad: It Might Not Work Longer
FIRE proponents typically invest nearly all of their savings in equity index funds. This is potentially a problem if the money printer is turned off by central banks, as seen in a chart of the S&P 500 denominated in USD M2 money supply which shows essentially flat performance over several decades:
FIRE proponents’ calculations could stop working if the fiat money system fails and hyperbitcoinization happens. As most bitcoiners already know, all tends to zero when price in bitcoinincluding the S&P500.
The best of both worlds: Bitcoin On FIRE
“I don’t think there’s a single person with a negative view of bitcoin who’s spent 100 hours studying it.” – Michael Saylor
Like all asset owners, the FIRE movement has benefited from the fiat standard. If it is not broke, do not fix it…
But maybe if FIRE proponents did their 100 hours, they could find an incredible alignment between bitcoin and their personal values, as well as uncover investment fundamentals that are almost bulletproof and make bitcoin the ideal savings vehicle.
Common criticisms of bitcoin by the FIRE community are no different from those voiced by mainstream financial circles over the past decade: bitcoin has no intrinsic value, it produces no cash flow, it is too volatile. Even if you accept these arguments as deciding factors for implementing a FIRE strategy (I don’t and I doubt most will after their 100 hours), they are all overturned simply by the superior of Bitcoin. total returns.
It’s often said that it’s sacrosanct to sell bitcoin and I generally agree holding on to it for as long as possible and supporting your lifestyle with productive work is probably the safest strategy for most people. However, retiring early and periodically dipping into your bitcoin holdings in perpetuity will be mathematically possible for many, both sooner than they might imagine and before hyperbitcoinization. You just need the growth rate of bitcoin to outpace your withdrawals and inflation. As Greg Foss said, “It’s just math.
I encourage you to manage your own numbers (everyone’s situation is different and this is not financial advice). If you need help with a very basic spreadsheet template, please contact us by Twitter.
Bitcoin’s historical total return performance has been incredible. His Compound annual growth rate over 10 years (CAGR) is 200%. However, its growing maturity could ultimately result in longer cycles with lower yields (fair to say, the jury is still out on that!). Either way, 200% provides a parcel room for maneuver when you consider the S&P 500 The 10-year CAGR is around 13%. When running your numbers, it would be prudent to build in your own buffers (e.g. assume lower bitcoin returns in the future and/or higher inflation rates in your spending).
For those who are brave and trust the math, you will find that you need a significantly lower starting balance when valued in fiat compared to using traditional FIRE techniques.
Bitcoin’s total return potential is also the best defense against volatility when retiring to a bitcoin standard in a fiat world. However, it can also be prudent to ensure withdrawals are regular (e.g. weekly or monthly), as you naturally wouldn’t want larger selloffs to coincide with periods of heightened downward volatility in bitcoin’s price. Psychologically, this can be a difficult process to manage. A disciplined and consistent approach to selling – regardless of short-term price action – could help alleviate this tension. This is essentially the opposite of buying bitcoin using dollar cost averaging (DCA) strategies (without the aid of automated services).
For retired Michael Saylor School Bitcoiners who agree that bitcoin will rise in value “…forever Laura” (my view too), delaying sales as much as possible will likely perform better over longer time frames. long. It just comes with more potential for anxiety and human error.
In conclusion, the typical FIRE pattern isn’t necessarily broken, but I argue that there might be a better way for this move. Simply replacing equity index funds with bitcoin (even in part) has the potential to dramatically accelerate their path to freedom.
For existing Bitcoiners, running some basic numbers in retirement is always worthwhile, even if you never intend to sell your bitcoin and would like to work forever. At the very least, afterward, you might not feel like you’re out of bitcoin…for a day or two!
This is a guest post by John Tuld. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.