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What if FIRE doesn’t work?

A no entry sign with the image of a fire crossed out. Symbolising FIRE not working.

My greatest fear about FIRE1 is that it doesn’t work. That FIRE doesn’t make me happy. It turns out to be a mirage. The dream dissolves and, in a desperate attempt to retrace my steps, I go back to my old job. The lifer who walks back into his cell.

To me, this is swallowing the blue pill.

There’s a wave of doubt that’s rippled through a patch of the UK Financial Independence community that I frequent. See bloggers such as Finimus, Indeedably, Simple Living In Suffolk.2

Every time one of these FIRE-ees announces their return to work, I think of another soldier falling to cannon-fire amid the thinning ranks of a Napoleonic line. 

I take it personally, I suppose. Why? Because if it happened to them, it can happen to me.

I’ve banked a lot on FIRE being ‘the answer’.

Let me level with you:

  • I’m riddled with doubt about how this will go. 
  • I will consider it a profound personal failure If I return to my old line of work because I can’t find anything better to do with myself. 

I’m nervous about making this work because the stakes are high. 

What’s up for grabs is living a life doing things that matter to me and those I love.

As opposed to pouring my energy into hitting corporate targets that loom over everything like a dark star.

When the FIRE goes out

What goes wrong when the FIRE dream dies?

  • Boredom – life is too quiet, challenge disappears, domestic tasks don’t translate into self-worth, leisure without measure is like eating junk food 24/7. 
  • Lack of social contact – everyone’s at work, there’s a loss of comradeship, isolation sets in. 
  • Status anxiety – it’s too soon to be out of the action. There’s a sense of being sidelined, no longer needed, being a disappointment to oneself, the community and those judgy types who ask, “And what do you do?” 
  • You’re meant to be happy – but what if you’re not happy after FIRE? “If this is bliss then I might as well be paid to be miserable” seems to be the way the thinking goes.

I don’t think falling into these existential tar pits is inevitable, but I am definitely vulnerable. 

Here’s how I plan to keep the FIRE burning

I’ll need some stress – not the chronic stress I experience at work, but I’ll need a challenge in my life that makes me experience discomfort. This will mean setting myself a task that I won’t already know how to achieve, or be innately good at. It’ll involve learning new skills. It’ll mean committing to the task (perhaps publicly), so that if I pull out then I’ll think less of myself. 

Community – if I spend all day with myself then I’m going to go nuts. I need to be of use to other people. To focus on their needs and not my own for a while.

It’s important to keep one’s expectations in check here. This isn’t about solving world hunger. If you can change one person’s life for the better then it’s worth it. Though you may never know the difference you’ve made.

FIRE gives me the chance to find a deeper sense of community than ever before.  

Physical I’ve worked in an office all my adult life. Air-conditioning, monitor tan, sitting for eight hours or more a day. I’ve stayed relatively fit but, god, the balance is all wrong. I want to be active for hours at a time, not an hour a day.

I want to chop wood, walk, cycle, dig, take up a martial art.3 It’s use it or lose it time for me, and operating purely in the knowledge economy means losing it. 

Nature – I need to spend more time feeling the elements on my skin. I want more woods, water, heat and cold, dawns and dusks. 

New skill – it’s time to try something I’ve never taken on before, something I’m curious about. Perhaps it’s something I wasn’t particularly good at in the past: maths or a foreign language. Perhaps the skill-challenge can tick my nature and physicality boxes, such as growing my own food or learning survival skills.

As long as I stretch myself then this will deliver my stress-dose, too, because I’m a sucker for imposter syndrome. 

A project – this will add structure to my week, giving it a backbone that everything else can hang from. Writing for Monevator and trying to make more of it in cahoots with The Investor is an obvious example. Renovating the house with Mrs Accumulator is another. 

A project needs to be absorbing enough to soak up the hours. It needs to give me a sense of building towards something and having made progress each week. 

Later on I can research / dabble in new projects as I understand more about who I am in my FIRE incarnation. Could I get involved with the green economy? Tree-planting? Rewilding? 

Fun and relaxation – there has to be time for just aimlessly arsing about. No goal, no growth. Just time that’s mine to fritter away. As long as this is rationed like a toddler’s screen-time, then I shouldn’t turn into a Doritos-munching, couch-blob sitting in his pants all day long. 

Family – Yep, they’re gonna get more of me. Unlucky!

Ideally the above becomes a self-supporting system of goals and behaviours that keeps me right side up as I adapt to a life of FIRE. 

The overarching goal is to chisel out a better version of myself. Someone I’m happy to be, regardless of what anyone else thinks. 

That’s going to require experimentation and likely stumbling down roads I didn’t expect to take.

FIRE alarm

None of this conflicts with the false FIRE belief that purity depends on whether you’re paid or not.

It does conflict with the false mainstream belief that retirement means doing ‘nothing’. 

It’s impossible for healthy humans to do nothing.  And I’m fine with being paid to do something I want to do. 

The key difference between the next phase of my life and the last is I won’t do anything just for the money, or to polish the CV, or to ‘fit in’. 

I think it will take at least two years to adapt to my new life. Every major change in direction I’ve taken has been followed by a massive crisis of faith. Like an earthquake followed by a tsunami.

I’ve wanted to cut and run but have always held on. Breaking through the pain barrier has always been worth it eventually, but it may feel tougher with FIRE because theoretically everything’s meant to be rainbows and unicorns from here.

Life isn’t like that, which is something I need to remember when doubt gnaws at my mind like it’s a chew-toy.

Take it steady,

The Accumulator

P.S. Here is a list to help you think about the things you really want to do. I can’t remember where I got this from, but it’s so good I’m just going to share it as is:

  • What can we do together?
  • What do you enjoy / value?
  • What did you enjoy as a child?
  • How would you like to make a difference?
  • How would you like to serve others, what’s the best way you serve others?
  • What would you like to be really good at?
  • What could you do for hours and never tire of?
  • What makes you happy / would make you happier?
  • What talent or skill could be built on?
  • What challenge excites you?
  • What have you never gotten around to doing? 

Hopefully someone else recognises this list and we can credit the original source. If you have a link to the original then please share it in the comments!

  1. Financial Independence Retire Early. []
  2. And before them, will-they won’t-they return to workers like RIT, YFG, SHMD. []
  3. I dabbled with Tai Chi in my twenties but it got squeezed out amid everything else. []

Weekend reading: Terror of Tesla

Weekend reading logo

What caught my eye this week.

Alas my co-blogger The Accumulator is too recumbent passive to bother with anything so energetic as sorting through the several hundred spam emails we get to Monevator each week in order to dig out reader messages.

That means the readers who asked for our thoughts on the upcoming inclusion of $470bn electric car maker Tesla into the S&P 500 don’t get his comfy and sanguine words.

Instead they get my snark.

Let me first stress then that we’re flattered when anyone asks our opinion.

Any snarkiness is just to liven up a dull autumn morning – as well as the potentially (whisper it) less than exhilarating subject of index investing.

Musky smell

Hold up: haven’t we often stressed that passive investors should have an understanding of what’s under the hood of their funds?

Superficially, then, doesn’t it seem logical to be alarmed that a controversial and apparently bonkers-overvalued outfit like Tesla would garner a share of your retirement pennies? That a portion of your passively invested pension could be under the sway of Elon Musk, some people’s idea of a Marvel super-villain?

Superficially logical, but in my view a misplaced concern.

I don’t just say that because I’m a big fan of Tesla and Musk.

Nor even because I first bought (a woeful few) Tesla shares around – cough – $30, or about $7 in today’s money.1

No, worrying about Tesla as a passive investor isn’t warranted, in my view, because passive investors should just be passive investing.

Why? Let me count the ways:

It doesn’t matter – Ben Carlson has done the sort of deep dive some are probably looking for on Tesla’s inclusion in the S&P 500. Ben points out Tesla will likely make up about 1% of your S&P 500 holdings – and much less of your portfolio taking other regions into account.

You can’t put a price on Tesla – Why should a passive investor feel at all confident saying Tesla is overvalued? The theory behind passive investing is the market’s best guess – on average – is the one to go with. Your edge is you think Tesla shouldn’t be worth multiples of veteran car companies who make multiples more cars? Or that Elon Musk is a blowhard? People have been saying that for 10 years. Incidentally, you’re in good company – it’s nothing personal. I hope Ben doesn’t mind me mentioning that he and his sidekick Michael Batnick were laughing about the supposedly absurd valuation of Tesla since they began their Animal Spirits podcast. They’ve been wildly wrong.

Maybe Tesla is overvalued, but what are you going to do about it? – My faith in Tesla could be misplaced. I’ve been wrong about plenty else before and it is harder to be confident of decent returns from this high market cap. Maybe it is in a bubble. But what action will you take if it is? Short the stock? Abandon passive investing for active stockpicking? Even if you’re right about this one stock, are you going to be one of the few who is right about enough other stocks to beat the market? Have you got the time, passion, and energy to find out? No, no, no. Stick to index funds and enjoy a new series on Netflix.

You probably only care about Tesla because it’s famous – Maybe you’re a passive investor who has dug into hundreds of boring companies despite only buying index funds. But it’s likely you know about Tesla because it makes fancy cars and its founder is always in the news. You should understand there’s all kinds of shenanigans, crazy-seeming overvaluations and under-valuations, and things you wouldn’t think you’d want to touch with a bargepole whirling around the indices all the time. You just don’t know about them. For instance infamous hedge fund manager Bill Ackman has a closed-end trust that owns billions of dollars worth of his hedge fund alongside a ten-figure investment in a ‘blank cheque’ SPAC vehicle that is going to go and buy a totally undisclosed target. This trust is knocking on the door of FTSE 100 inclusion. Most passive investors would run for the hills if they looked at it, but they’ll never know about it. (Disclosure: I own a few shares in it.)

We’ve seen this before with Facebook – Same deal! Although it’s mostly forgotten now. Facebook’s valuation was said to be ludicrous. The profits were generated out of the thin air of the Internet economy. The CEO was a kid. The shares were in a bubble. Only they’re up about five-fold since it floated. Oops! (The Accumulator wrote a great post on the fears around Facebook joining the market at the time.)

If you really want to fret, worry about why you didn’t own Tesla when it was 50-times cheaper – It’s very easy to fear what you own going down. But how many passive investors fretted about whether their index fund owned Tesla all the way up, and if not what gains did they miss out on? To their credit one of our querying readers noted they already owned Tesla via their choice of a very broad index fund, and rightly saw this as a demonstration of the value of wide diversification.

Again, I’m glad we are considered a resource worth directing such questions to. And I mean everything above in the spirit of tough love.

Sure I could go into the mechanics of Tesla’s inclusion (and hitherto exclusion) from the S&P 500, the free float impact on its weighting, or even the risk of hedge funds front-running this well-signposted index addition.

But I really don’t think any of that matters for 99% of readers.

The winner takes all

Nobody denies that some duds get into the indices. High-flyers that prove to be too expensive, too faddish, too crooked – who knows?

But passive investing isn’t the most successful way for most people to invest because it is a strategy that somehow sidesteps landmines in the market.

Passive investing is not, in other words, great at active investing.

Passive investing works because after fees, on average, the typical active fund won’t be great enough either to do better than a warts-and-all passive fund2. The passive fund will probably beat the active fund alternative, and even if it doesn’t it’ll deliver very near the market return.

Passive investors do better than most active investors not by being cleverer in their stock selection, but by being clever enough to know their limitations.

The crazy thing is it’s a ton less work and stress than active investing, too.

Why spoil a good thing by worrying about micro-details?

Have a great weekend all!

[continue reading…]

  1. Don’t worry, I botched my trading as I got jittery and dithered a few crucial months when defusing the gains and moving it from outside to inside an ISA, so I didn’t enjoy all those crazy returns! []
  2. Really the average pound invested, but that’s niggly for this post []

A coda to my mini-bond confession

Warning: Mini-bonds are dangerous to your wealth

The 1990s ‘Lads’ mag’ Loaded1 had a section called Getting Away With It. From memory it comprised photos of the magazine’s titular lads in-country, stumbling over bikini-clad glamour models at press events, or driving a rented Lamborghini into a wall.

Consider this post on mini-bonds in that spirit.

I obviously shouldn’t have gone near mini-bonds. And I don’t just say that with hindsight.

But I got away with it.

Definitely Maybe

In an article in June 2009 entitled Why I’d avoid these unlisted bonds like the plague, I pointed out the problems with these new-fangled mini-bonds.

Scant documentation, unsophisticated buyers, illiquidity, and more.

I wrote:

What would trouble me is if [this early issue] started a craze for unlisted bonds.

One company doing a one-off deal for headlines is one thing, but dozens of companies raising money direct from an always-credulous public would surely end in tears.

I then did what I often do around here, which is the opposite of what I suggest you do.

There’s a reason my doughty co-blogger The Accumulator was brought in to shoulder the passive investing duties years ago. I’m the investing equivalent of a cardiologist who smokes 60 a day.

I began to put money into mini-bonds.

Different Class

Apologies if you just choked on your lockdown lunchtime chardonnay, but this is not a new revelation.

I confessed to my mini-bond portfolio in September 2016.

It was only about 1% of my total net worth. Enough for a nice holiday or two at that point, but not life plan-threatening.

I hadn’t changed my mind about these investments. I didn’t believe mini-bonds had become a stunning opportunity.

On the contrary, I said they could be cynically described as:

…the junkiest of junk bonds – pseudo-corporate bonds issued by companies so risky that professional investors wouldn’t touch them with a barge pole taped to a barge pole.

But I was not quite so cynical, and I had my own reasons for investing in them.

Read that post if you want to know more about mini-bonds – and why and how I assembled my portfolio.

Anyway, the last of my mini-bonds matured in March 2020. This rest of today’s post just signs off this chapter of my investing antics.

(What’s the Story?) Morning Glory

I won’t name the specific mini-bonds I bought.

Last time I didn’t want to be seen to endorse any of these risky and illiquid issues. This time I think the names are too distracting from the big picture.

Here’s a snapshot though of my portfolio in abstract terms:

Company / sector Yield
Fast casual dining 8%
Coffee chain 8%
Property firm 7.5%
Speciality coffee chain 8%
Craft brewer 6.5%
Fast casual dining 8%
Coffee chain (2x position) 11%
Speciality food retailer 8%
Energy infrastructure 8%
Property firm (5x position) 10%
Average 8.9%

Source: My off-spreadsheet records

As you can see, the high yield was the main draw – even back in 2016, before most people had heard of negative interest rates.

You also got also free coffees, brunches, and various other perks with many of the bonds.

Finally, there was the main reason I did it – for kicks and for experience.

I enjoyed meeting management at special events before investing. I believe I rejected a couple of bonds this way, too.

These meetings also whet my appetite for investing in unlisted equities via crowdfunding. More on that skeleton in the cupboard another day.

So how did my mini-bonds fare?

It’s Great When You’re Straight… Yeah

The majority of the mini-bonds ran for four years before you got the option to rollover for a year or redeem your investment.

In every case I redeemed where I could.

But I couldn’t always redeem as planned!

Firstly, the mini-bonds in the coffee chain where I took ‘two helpings’ – that paid a stonking 11% – were redeemed early. These were in a (fabulous) Australian chain called Daisy Green. I wrote about their redemption here.

There was no problem at Daisy Green. Indeed that was the problem if you were a mini-bond holder.

The company was doing really well! But rather than being rewarded for this as a bondholder, you got refinanced out of the picture and the equity owners enjoyed the future upside.

This brought home something I knew in theory but had never quite experienced in practice: bonds are for pessimists, shares are for optimists.

(Daisy Green did offer former bondholders and others the opportunity to buy its shares at a later date. Perhaps it was inspired by my moaning.)

I was frustrated to lose that lovely 11% yield. But that was far better than what happened at the other mini-bond I was unable to redeem.

The bond – in a ‘speciality food retailer’, with an 8% yield – went bust!

I got a couple of years income before it went to the great graveyard of failed dreams in the sky, but it still represented a more than 80% loss on a single investment.

The beauty of starting with a high portfolio yield though is that the income you earn covers over a lot of pain.

My bust-bond represented 1/15th of my mini-bond portfolio. So even its total wipeout was covered by the annual interest from the rest of the portfolio.

However it clearly did have the affect of bringing down the overall yield I enjoyed from this experiment – as did of course the early redemption.

As I stated in my 2016 post I was fully prepared for one or two bonds to go bust.

Still annoying though, especially given the limited upside for taking this risk.

The Great Escape

At this point a nerdier more committed blogger would tot up all the income they received from their mini-bonds, account for the loss, and figure out the overall return from this foray into foolishness.

Where is The Details Man when you need him, eh?2

I’m too old and running out of time to bother doing that. All the bonds that lasted for the duration started and ended at different dates. It’d also be non-trivial deciding how to treat the reinvestment of the coupons.

My mini-bond portfolio was mostly for fun. Bond and return maths is not fun!

The return I got (I’d guesstimate around 7%) was okay, but I don’t need a decimal point in a spreadsheet to tell me I probably would have been better off in a global tracker fund – let alone my own actively-run portfolio (which I have unitized and track to the very last penny).

Besides, four years is nothing in statistical terms. If stock markets had slumped for a few years from 2016 then maybe this mini-bond lark would have looked superficially savvy.

But that brings me to the final point – which is that I owe my brush with mini-bond success to a fair dollop of luck.

Because several of my mini-bonds would have suffered in the coronavirus era. And I know at least one of my former investments has gone bust!

Roll the start of my experiment along by just one year – or see somebody getting intimate with a bat in Wuhan a year earlier – and my results would have been far less satisfactory.

Plenty of people have seen their mini-bonds fail, even without a miserable global pandemic to finish them off. Many bust mini-bonds were dubious-looking financial issues that I wouldn’t ever have touched… but not all of them.

I Should Coco

We are never likely to get useful long run mini-bond data over many economic cycles.

Mini-bonds, at least in their UK incarnation, were a product of their time. A moment fostered by low interest rates, a temporary scarcity of bank funding for small businesses, and new Internet-enabled platforms that could market the mini-bonds effectively and cheaply to a wide audience.

However the Financial Conduct Authority permanently banned marketing mini-bonds to retail investors in June 2020.

I qualify as a sophisticated investor, and I could invest again in mini-bonds if I wanted to.

But I’m sufficiently sophisticated to know I shouldn’t!

The best takeaway from this investment fad was probably the fancy coffee.

  1. A genuinely innovative magazine, if a creature of its time. Far more so than its insipid rival, Maxim, which did the dirty without even a hint of a knowing wink. []
  2. Back at work is where – boo! []

Our updated guide to help you find the best online broker

Okay, UK investors, after taking the pain of creating a whopping great comparison guide to the UK’s leading online brokers, we’ve once again returned to the battlefield to fully update it.

Eating a bag of rusty nails water would have been more fun, but it would not have produced a quick and easy overview of all the main execution-only investment services.

Fund supermarkets, platforms, discount brokers, call ’em what you will – we’ve stripped ’em down to their undies for you to eyeball over a cup of tea and your favourite tranquilizers.

Online brokers laid bare in our comparison table

Who’s the best broker?

It’s impossible to say. There are too many subtle differences in the offers. The UK’s brokers occupy more niches than the mammal family, and while I know which one is best for me, I can’t know which one is right for you.

What I have done is laser focus the comparison onto the most important factor in play: Cost.

An execution-only broker is not on this Earth to hold anyone’s hand. Yes, we want their website to work, we’d prefer them to not screw us over, go bust or send us to the seventh circle of call centre hell… These things we take for granted.

So customer service metrics are not included in this table. It’s purely a bare-knuckle contest of brute cost for services rendered.

Why should investors flay costs as if they were the tattooed agents of darkness? Because if – as the FCA predicted – you will see an annual after-inflation return of 2.5% on your portfolio for the next decade, then the last thing you need is to leak another 1% in portfolio management charges.

This makes picking the best value broker a key battleground for all investors.

Using the table

I’ve decided the main UK brokers fall into three main camps. These are:

  • Fixed fee brokers – Charge one price for platform services regardless of the size of your assets. In other words, they might charge you £100 per year whether your portfolio is worth £1,000 or £1 million. Generally, if you’ve got more than £25,000 stashed away then you definitely want to look at this end of the market. Bear in mind that fixed fee doesn’t mean you won’t also be tapped up for dealing monies and a laundry list of other charges.
  • Percentage fee brokers – This is where the wealthy need to be careful. These guys charge a percentage of your assets, say 0.3% per year. For a portfolio of £1,000 that would amount to a fee of £3. On £1 million you’d be paying £3,000. Small investors should generally use percentage fee brokers, but even surprisingly moderate rollers are better off with fixed fees. Many percentage fee brokers use fee caps and tiered charges to limit the damage but the price advantage still favours the fixed fee outfits in most cases.
  • Share dealing platforms – Platforms that suit investors who want to deal solely in shares and ETFs. Sites like X-O and friends fill this brief.

Choosing the right broker needn’t be any more painful than ensuring it offers the investments you want and then running a few numbers on your portfolio.

The final point you need to know is that this table’s vitality relies on crowd-sourcing. I review the whole thing every three months, but it can be permanently up-to-date if you contact us or leave a comment every time you find an inaccuracy, fresh information, or a platform you think should be added.

Thanks to your efforts as much as ours, our broker comparison table has become an invaluable resource for UK investors.

Take it steady,

The Accumulator