Don't Get Burned by the FIRE Movement

Editor's Views: Retiring in your 40s is appealing but problematic, Woodford Income Focus's relaunch could backfire and the changing face of emerging market investing

Holly Black 14 February, 2020 | 10:10AM
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Editor's views

Very few people would turn down the opportunity to retire at 41, but how far would you be prepared to go to achieve this?

Naturally, a lottery win would be the ideal scenario – minimum effort, maximum reward. Of course, I’d have to start buying a ticket for that to work. But saving 93% of my salary for 10 years so I could hang up my hat 25 years ahead of schedule? I’m not so sure.

The FIRE movement is all about saving hard during your 20s and 30s so you can achieve financial independence while you’re still young enough to enjoy it – and it’s attracting a lot of followers. But I’m in two minds about the idea; scrimping and saving and living on the bare minimum for two decades doesn’t sound like much fun. Sure, if you can retire at 40 you’ve got plenty of time to enjoy the spoils of your efforts, but I worry this could just be setting yourself up for a fall.

The problem is there are just so many variables, even once you reach supposed financial independence. What if the investments that are supposed to fund your lifestyle don’t perform? What if inflation ramps up and you can’t grow your money in line with the rising cost of living? What if you have more children than you planned, a costly divorce or an illness that racks up expensive medical bills? It would be awful if a lifetime of frugality suddenly wasn’t enough.

And yet, and yet. If the FIRE movement captures people’s imaginations and boosts saving further up their priority list, I’m all for it. As Alan Donegan found out, by the time he had achieved financial independence he didn’t entirely want it yet anyway, and he’s continuing to work but at a slower pace.

But the important point is that his intense saving strategy has given him that choice. If this movement means more people realise investing can give you that power, then I hope this FIRE is one that spreads like, well, you know, wildfire.

Will Woodford Investors Rush for the Exit?

Yesterday the Woodford Income Focus fund re-opened allowing thousands of investors the chance to access the money that’s been locked out of reach for months.

The portfolio has been revamped, the name has been changed (to ASI Income Focus) and there are two new managers in charge. But I fear that even these drastic changes will not be enough to keep many of the investors who have endured a frustrating and worrying time waiting to hear what will happen to their money.

I don’t envy new managers Thomas Moore and Charles Luke; while they are doubtless experienced and skilled, they will likely spend at least the next few weeks dealing with a deluge of outflows from the fund, as investors take their money and run, scarred by the experience of the past few months.

Of course, their fund is full of big, liquid stocks that are easy to trade but that doesn’t make running a fund which is bleeding assets an easy or enjoyable task. And I can’t help wondering whether if re-opening this embattled fund was really the right decision.

Look Beyond China

We’ve been looking at all things emerging markets this week and, with a trade war still rumbling on and the coronavirus spreading across the world, there has been plenty to talk about. But emerging markets are so much more than just China and its relationship with the rest of the world.

Increasingly, this region is proving itself a serious contender for income investments, while many companies are also making huge strides in matters of ESG, improving corporate governance and their environmental policies. Once just a place for active managers to find opportunities, there are also a growing number of options for passive investors looking for cheap ETFs to track the market.

So whether it’s the outlook for India, some myths about Frontier Markets or ways to invest sustainably, we hope this week has given you some food for thought and maybe some inspiration to look further than the FTSE. 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk