I Was on FIRE and Now I Just Want Out!

Hi Scott,

I am 21 and got sucked in by the FIRE movement. I put $50,000 (my life savings!) into diversified high-growth index funds last year when values were reaching historic highs. Now everything's starting to crash, and my parents have been encouraging me to sell my shares and move the funds into a savings account before it drops further (in doing so, I would make a loss of at least $7,000). I had originally invested this money for the long term, with the aim of selling the shares in five to ten years’ time. Do you think my parents have the right idea?

Sarah

Hi Sarah,

No, I do not think your parents have the right idea.

I think your parents love you, and they want to cocoon you from the risks of the big bad world.

(And as a parent myself I totally understand their motivation.)

Now, this is important: the really important life lessons – the ones that shape you – happen when things don’t turn out as you planned.

And, Sarah, you’re having one right now.

The FIRE (Financial Independence Retire Early) movement involves living frugally in your 20s and 30s and investing up to 70% of your income into low-cost index funds so you can retire in your 40s (or earlier).

For me it’s the financial equivalent of the grapefruit diet. It gets impressive results, but it’s incredibly hard to sustain over the long run. It’s just too hardcore for most young people.

However, its underlying principles – save hard, and invest long term in low-cost index funds – is absolutely, positively the right way for you to go.

With that said, here are three things for you to think about:

First, you say you plan on selling your shares in “five to ten years’ time”. That’s not enough time to benefit from the power of compound interest. Ideally you want to hold your shares throughout your life, reinvesting the dividends along the way.

Second, even though it seems bad, the share market actually isn’t down that much right now. There’s every likelihood that you’ll suffer a 50% drop in the value of your shares at some stage. That’s the price you pay for getting high long-term returns. So shop for shares the same way you do clothes: if you work out prices are down and shares are on sale, get excited and buy more.

Finally, if the reason you’re wanting to sell is to buy a house, DON’T SAVE IN THE SHARE MARKET. Instead park that money in an online saver or term deposit.

Know this: there are millions of people reading these words, wishing they were you: a young intelligent woman at the start of her adult life with a well-stocked share portfolio, and loving parents.

You Got This!