Coming off the worst December in the stock market since the Great Depression, it’s easy to understand why there might be panic in the FIRE pits.
Clearly, those optimistically gunning for FIRE (financial independence, retire early) glory on the back of rosy market assumptions are having to grapple with some serious volatility and nosebleed declines after years of smooth sailing.
But Karsten Jeske of the Early Retirement Now blog is here to tell you: Relax and find comfort in the cozy embrace of the big picture.
“Big deal. If you get your pants in a knot over [the 2018 decline] you probably shouldn’t invest in stocks in the first place,” he said, pointing out that the run of nine positive years illustrated in this chart had to come to an end sooner or later:
Of course, that chart doesn’t do much for those still reeling from the sharp pullback that tore investors apart in October. That shouldn’t, however, be enough to derail FIRE plans, according to Jeske, who retired last year at 44 years old.
“There’s good news: Equity valuations look pretty attractive now!” he said. “I’d argue that with earnings growth so strong and at least solid going forward there’s a good chance that drawdown in the fourth quarter is only temporary.”
In other words, the stock market just suffered a healthy blip. Jeske believes that most FIRE enthusiasts, contrary to what you might have read across the financial media, will survive this and stick to their long-term goals.
For one, they generally have youth on their side and hopefully understand that the stock market historically delivers the goods over time. They also tend to have a withdrawal rate — the amount you can take out of your nest egg each year without losing ground — of 4% or less, which makes withstanding the downturns much easier to stomach.
“If your withdrawal rate is low enough that your portfolio would have made it even through the Great Depression,” Jeske said, “then there’s a pretty good chance that you’ll make it through this garden-variety mini-bear-market.”
And 2019 is obliging, so far. The S&P 500
is up more than 2% already this year, with the Dow Jones Industrial Average
and the Nasdaq Composite
also logging solid gains.
“I don’t see a serious threat to my personal retirement (yet) and the calls for the end of the FIRE movement are likely premature as well,” Jeske concluded in his blog post. “Most early retirees who were prudent with their safe withdrawal rate will likely do well. And if you’re not yet retired, keep saving and keep dollar-cost averaging through this market drop and you’ll do just fine!”