Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

2nd Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

By David Wismer

Did you know that April is Financial Literacy Month?

Financial Literacy Month was designated officially by the United States Senate in 2004 via Resolution 316, during the administration of George W. Bush. According to Forbes, “The campaign began as Youth Financial Literacy Day, first introduced by the National Endowment for Financial Education (NEFE). In 2000, NEFE handed over the reins to the Jump$tart Coalition, which expanded the one-day campaign to an entire month called Financial Literacy for Youth Month. The event’s name was eventually changed to Financial Literacy Month.”

During past Aprils, I have used the occasion of Financial Literacy Month to write about a specific aspect of financial education or financial planning. I hope you will find this month’s topic interesting.

FIRE: Financial independence, retire early

One of our writers for Proactive Advisor Magazine is currently working on an article regarding the “financial independence, retire early” movement (FIRE).

She notes that an increasing number of people, especially the younger set, have been turned on to FIRE. They are streamlining their spending and living within tight budgets, all while attempting to amass enough wealth to retire long before the traditional age of 65—some even in their 30s or 40s.

According to research published by Goldman Sachs at the end of 2021, “The youngest respondents are expecting to leave the workforce much earlier … with 25% of Generation Z respondents planning to retire before the age of 55. … Roughly 30% of those under age 40 believe they need 60% or less of their pre-retirement income in retirement, compared to Generation X respondents, who feel they need 80% of their pre-retirement income in retirement.”

The pandemic shutdowns and shifts in the workplace likely accelerated the popularity of the FIRE movement. Many people spent less while staying home more, or found they could work remotely or retire early in places where the cost of living is lower, including other countries.

“Layoffs and re-organizations may have given some people a taste of freedom,” FIRE blogger Pete Adeney told Kiplinger. “I think part of the ‘Great Resignation’ we’ve been reading about in the news is people taking early retirements and choosing to stay home with their kids or start something new.”

Key aspects of the FIRE movement

• The FIRE movement was inspired by the 1992 book “Your Money or Your Life.”

• FIRE is defined by frugality and extreme savings and investment, leading to early retirement and living off small withdrawals from accumulated funds.

• Proponents should closely track expenses, cut unnecessary spending, and determine their “FIRE number” (the amount needed to generate sufficient income in retirement).

• Pay off debt—especially high-interest debt—and maximize savings in tax-advantaged accounts. Find ways to boost income, such as taking a second job, starting a side business, or generating passive income (i.e., rental income).

• The FIRE movement continues to grow in prominence, with numerous books, forums, and blogs on the topic. Several variations of FIRE have been publicized, including lean FIRE, fat FIRE, barista FIRE, coast FIRE, and slow FIRE.

A financial adviser interviewed for the article defined three of the FIRE variations this way:

“Lean FIRE means planning to live at substantially less than your current living standard in retirement. As such, a client doesn’t have to save quite as much—they just need to bridge the gap between now and when they file for Social Security benefits. Fat FIRE means saving enough to retire early without altering your current living standard. Barista FIRE is somewhere in the middle—still having a minimal lifestyle until retirement, but saving enough to retire early from full-time work. It is called ‘barista FIRE’ since many people in this category might still want to work part-time to fund things like travel or other ‘wants’ beyond daily living expenses.”

How financial advisers guide FIRE proponents, especially with active investment management

In speaking with several financial advisers, the article’s author universally found that they thought proactive financial planning was more important than ever for clients considering FIRE—starting as soon as possible.

Making every dollar in earnings and savings work hard becomes critical during a shortened time frame of working years. Budgeting, managing credit, making sound choices about employee benefits, mitigating taxes, strategizing for Social Security, and understanding intermediate and long-term insurance needs were just some of the important planning considerations for FIRE clients. And, of course, at the top of the list was basic retirement-income planning—scrutinizing scenarios for future income streams, living expenses, and withdrawals from savings and investments, while factoring in realistic inflation and longevity assumptions.

On the investment strategy front, several advisers emphasized the importance of risk management through actively managed investment strategies.

Said one adviser, “Tactical management of their investments is very important, especially if their goal is to retire early. We can’t buy and hold everything in stocks and hope for the best—these clients just don’t have enough time to recover from a market correction.”

Another commented, “I use algorithm-based portfolios, mostly for retirement assets, and these types of clients understand that most things in the new meta-universe are driven by algorithms. They are used to new technologies in many areas of their daily lives. They like that these investment solutions can help mitigate risk and volatility, while taking advantage of trends. Compared to more typical strategic asset allocations, active and tactical management seeks to minimize portfolio gyrations and can offer more potential downside protection, while trying to capture the upside of the equity markets.” 

These advisers were referring to the potentially heightened impact of “retirement date risk.”

For investors who are within five to 10 years of retirement, the sequence of returns for their investment portfolio is as important to them as it is for recent retirees. For passive, buy-and-hold investors, a singular market event (such as that experienced in 2008–2009), or a less dramatic series of negative investment return years, can erode a portfolio’s value to the point where a planned retirement date might have to be postponed—often for many years.

The overall investment philosophy that is a hallmark of Flexible Plan Investments (FPI) is particularly well-suited to address retirement date risk for individuals interested in the FIRE movement (and most other investors as well). Each FPI strategy is designed to take advantage of specific opportunities—and to avoid specific risks—in the market. FPI also helps advisers and their investor clients build portfolios composed of multiple strategies—each one designed to take advantage of different market opportunities and avoid different market risks. This gives the overall portfolio the tools it needs to navigate the market as it changes over time.


In reviewing this article and looking at some secondary research, what really struck me was the highly qualitative side of guiding clients interested in the FIRE movement. No matter what type of FIRE a client might be interested in, the goals of becoming a better steward of money, seeking better work-life balance, and truly defining priorities seem beneficial for anyone.

One adviser put it particularly well: “Before someone jumps into the FIRE movement, it is important for them to think about what they want out of work and life and to answer the question of what financial independence means to them—because the answer is different for every person.”

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