Since hitting a high on Feb. 16, the Standard & Poor’s index has dropped by 12.49%, taking followers of the FIRE movement — financial independence, retire early — on a volatile ride, thanks to the unprecedented pandemic and efforts to stem it.
For those who were heavily invested in index funds, coronavirus-related market movements may have hampered their retirement milestones.
“I know our net worth has gone down by $50,000 the past couple of weeks,” said Rachel Jones, owner of the personal finance blog Money Hacking Mama and a FIRE follower. But “when you’re on the positive side and see exponential growth, you pat yourself on the back.”
Despite this loss, Jones and other veterans of the movement remain optimistic about their early retirement goals and give newer participants of the movement advice on how to stay the course during an historic global health crisis.
Shoulder expenses with an emergency fund
Jones, who with her husband has $650,000 across their investments and savings accounts, still recommends having a good old-fashioned emergency fund to lean on in tough times.
“We’re still in the workforce, but we have quite a bit of cash, about three to six months’ worth,” Jones said, who said 90% of her portfolio is in stocks.
She cautioned those FIRE followers who may have cut down on their expenses, but still lack an emergency cushion.
“You [probably] don’t have much money if you’ve cut to the bear bones and can’t cut back any more,” Jones said. “I want to live comfortably, and therefore, it helps to have a decent emergency fund.”
FIRE matriarch Tanja Hester added that during a pandemic, even everyday chores such as grocery shopping can come with an unexpected cost.
“The younger you are the more invincible you feel, but now you can have big expenses that you can’t frugal yourself out of,” said Hester, author of the book “Work Optional: Retire Early the Non-Penny-Penching Way. ”“Maybe you have to get groceries delivered now, and it’s hard to take advantage of a sales hack on your grocery budget.”
Hester also noted how saving money becomes much harder when grocery prices are increasing at record clips.
“A failure of this idea in real time that you can hack your expense is when you’ll have to pay $20 on a pack of toilet paper,” Hester said. “We’re seeing those who have padding into their budget will have wiggle room.”
Use market lows as a buying opportunity
Aside from building an emergency cushion, new FIRE followers can reframe market tumbles as opportunities to buy investments.
“Set your investments on autobuy, whether it’s $200 every other week or $100 a month,” said Jillian Johnsrud, a FIRE participant who retired early at 32. “If this is a retirement account, chances are the ups and downs will have no effect in 20 years.”
But both Johnsrud and former FIRE patriarch Sam Dogen agreed that investing all your money in S&P index funds may not be the ideal choice.
“I’ve been writing about FIRE since 2009 and 99% of the FIRE movement followers are under the age of 40 and they brag all the time about their Vanguard total stock market index fund, but don’t worry about a downturn.” Dogen, a San Francisco resident said. “[Meanwhile] I was thinking about what if the stock market goes down 20%. I’ll need to prepare when bad things happen.”
Diversify your income streams
Another method for staying on the retirement course is to diversify your streams of income.
“[We] were planning for markets being in an erratic year.” Johnsrud said, who receives income from rental properties, her husband’s pension, and investments.
Johnsrud has lost as much as $44,600 since Feb. 16, but her other two streams of income have helped her hedge against future losses. She also has a one-year cash buffer.
But she feels for those who are struggling when starting out on their FIRE journey, especially now.
“I think it’s going to be stressful for young FIRE participants, because a lot of people before them already made mistakes in 2008 and in the tech boom,” Jonsrud said. “It probably took us 13 years to get to financial independence, so we’ve seen a lot of market ups and downs and have had a long time to learn.”
Read more information and tips in our Retirement Planning section