I Promise You 6% Annualized Return
Less FI, more FIRE
In 2008, the United States in particular, and the world in general, experienced the worst recession in almost 100 years. This recession left many people broke and many others with no hope of ever getting out of that hole again.
The major central banks made the most significant economic effort they had ever made. They started printing money and lowering interest rates to encourage consumption and revive the economy.
If you have been following this blog for at least a couple of months, you know that a DCF is useless and that what is really useful is to analyze what central banks do when it comes to economic policy. Although correlation does not imply causation, we see a strong correlation between central bank balance sheets and indices.
However, the average investor does not know this and (almost) always acts on what they read in the news. The news in 2008-09 was tremendously negative when it was far from being so. It is true that if you had not taken good care of your money in the previous years, it could be very harmful, but we had the indices at a 50% discount, and the central banks printed money like crazy.
It was not until six years later, when the indexes had already recovered all the fall (this means a 100% rise from the lows), that the newspapers began to change their headlines to a much more hopeful world.
At that time, a movement called FIRE or Financial Independence Retire Early emerged in the USA. This movement realized that the financial markets were not as bad as the newspapers said in 2008 and that if you indexed yourself to the world, you could get 6% a year (S&P 500). A promise which was far from being FIRE.
Look at how fast the index funds grew in Japan from 2010....
People started looking for that 6% per year when they didn't know that they actually missed the big rise from 2008 to 2015.
On the other hand, the average investor does not know that this movement (FIRE) is impossible to achieve with a fund that averages 6% per year, especially now that inflation is close to 10%. It is true that if you have the necessary patience, save and invest. You can reach the last period of your life with a lot of money. However, your health will probably not be the best possible.
How can we make the FI movement become FIRE?
Very simple. By not doing what everyone else is doing.