Whenever you pose a big question in a blog post title, you have two options. Tease the reader with snippets of pros and cons and force them to read the whole article. Or be upfront and hope they are engaged in your journey and want to read on. I am going for the latter!
In my humble opinion COVID19 is NOT a FIRE extinguisher. In fact, for some people it may yet be (and should be!) a FIRE-starter. Either way, there are lessons to be learned.
When I first wrote about COVID19 in Post #3. I won’t even claim to have had an inkling of what it would become. Following many sleepless nights, and some crazy ups and downs in the markets (and my mood!) it is time to try to commit some new thoughts to the FIDERweb.
When I talked about “sticking” to the plan, I thought that by July 2020 COVID-19 would just barely even be a memory. Could not have got that much more wrong. Back in February 2020, the 5% drop in 2 days was a scary thing and front page news. Fast forward to now and a 5% swing in a few hours is no longer front page news – we are in the era of 10% swings. Sometimes from positive to negative or vice-versa in the one trading session. I think John Lennon summed it up best when he said “Nobody told me there’d be days like these, strange days indeed“.
Lesson 1: What you think you will do and feel in a financial crash is very different to what you will do and feel!
I was sure that having been through the GFC (aka the “credit crunch’), knowing that 20% corrections occur every few years, and with a great spreadsheet, I was prepared for the next bear market! I would lick my lips at the sight of juicy stocks on sale. In fact I would access every bit of cash I could get my hands on and pile in hard.
And then I watched as the share market crashed, and crashed fast.
After each down day I shook my head at my stupidity for not selling. Holding on was just “head in the sand” behaviour I muttered to myself. My inner voice listed all the reasons it was so obvious the market was going to keep falling.
Then, suddenly the market had an up day! A big one!!!! This market had a snap back that even FIDERman’s best web couldn’t compete with. Thankfully I had not sold. But now my inner voice chastised me for not buying yesterday – that was obviously the bottom. The buying opportunity had been tand I missed it – AGAIN! I had spent almost two years regretting not buying in late 2018 when the market had dropped ~20% in a few months. Yet here was another opportunity. I could have bought back in for less and didn’t. Now it was on the way up again and I missed out again…..until I didn’t. I watched as the market dropped another 20% over the next few weeks.
I don’t know what real whiplash feels like, but if metaphorical whiplash from watching the stock market is any guide it must be very unpleasant.
Lesson 2: Don’t waste time beating yourself up for past decisions!
In lesson 1 I mentioned how I “regretted” not buying in late 2018. That is sugar coating it.
I actually spent a few hours every week since around February 2019 wondering why I hadn’t drawn $50k off the mortgage and bought stocks. I mean with the extra $10k in dividends plus the extra $10k the stocks had gone up I could have taken the FIDERlings to Hawaii, with money left over. I then chastised myself progressively more harshly as I “realised” the late 2018 dip was such an obvious overreaction and the subsequent 40%+ jump was “so inevitable” it was inconceivable stupidity to have drawn every bit of $200k off the mortgage and invested. Then we could have flown business class to Hawaii!
Now I can only look back at those wasted hours of playing “what if” on my spreadsheet with regret. Not to mention the impact on my psyche of actually criticising myself for not having perfect foresight. So, now I have decided I will not beat myself up in future for not being all knowing. Seems ridiculous to have actually have something as momentous as COVID-19 to make you realise something that obvious, but there it is.
Lesson 3: Having a plan that might need reworking is waaaay better than not having a plan
My plan is in my spreadsheet. And a few months ago that spreadsheet told me I was doing amazingly well. You could have called me (nerd joke warning) “The Amazing FIDERman”. In fact my FIRE date was looking to be late 2024 rather than early 2026.
I have to admit that as the share market continued to set record highs I enjoyed updating it on an almost daily basis. There was a buzz seeing that FIRE date move earlier. Then as COVID-19 hit I stopped updating it for a while. I knew roughly what the impact was in dollar terms but didn’t want to acknowledge it. One disadvantage of an inestment strategy of 100% in the Stock Market Index is it makes the maths a lot simpler when the news tells you daily how much the sharemarket fell in percentage terms!
Eventually my curiosity overcame my fear and I decided to face the truth. So back in to the spreadsheet I went. And it was bad…..but not as bad as I thought. Yes, my net wealth was down about as much I expected, and yes my FIRE date moved back out. FIDERman was down – but to my surprise, not squashed!
My FIRE date was back to 2026, albeit in the second half rather than the first half. Just as being well ahead of the plan only shifted the date forward by a year, falling a bit behind did not push it out too far. This was equal parts comforting, inspiring and intriguing.
Having a plan gave me something objective and impassionate to refer back to. I could stress test and see what this new investment world meant for me. I could put in some fairly pessimistic assumptions and see that it was a case of maybe an extra year at work – but not an extra five or six. Or if I wanted to stick to my original FIRE date, what my reduced retirement income would have to be or what reduced spend I would need to do now.
As embarrassing as it is for a numbers nerd to admit, I forgot some basics. By working an extra half year I get the triple benefit of not drawing down on my investments for that time, banking extra savings and getting the earnings on a bigger amount.
Lesson 4: COVID-19 should be a FIRE starter
This is still a scary and unsettling time – but being on a FIRE path and having a FIRE plan makes it less so.
Being on the FIRE path meant I had already shifted to living below my income. This meant I had savings and I could deal with the income reduction that occurred.
But having a FIRE plan also helped. The awareness of how much my net wealth has gone down sucks – but being able to dispassionately assess what it means is invaluable.
It is heartbreaking to hear the statistics of how few people can get their hands on $500 in an emergency and what COVID-19 has meant for them. For many others, thankfully this is only a wake up call that perhaps they need to be more financially literate.
This is why I think COVID-19 should be a FIRE starter. If you are on the FIRE path, I hope you will stay with me and stick with it, and in fact share the philosphy and benefits with others – become a their FIRE starter.
And if you are not yet on the FIRE path then I hope you can take one positive from this and use it to start a FIRE journey.
Lesson 4: Having a made up acronym has some unexpected benefits
If you have read from the beginning you will know that the “D” in FIDERman is for “discretionary”.
But given this is an acronym that I created, I have the power to change it!
SO, I have decided that, at least temporarily, the D now stands for ‘Delayed”!