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How To Invest For FIRE In Any Market Situation

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Invest In FIRE
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Everyone likes to see a steady and growing market where the value of assets continues to appreciate. But, sadly, that’s not how the market works, as periods of high volatility and uncertainty often bring the price of assets down, disrupting the value creation process. 

So, if you are investing for FIRE- financial independence, retire early; the concept of traditional retirement investment won’t help you much. Instead, you must re-examine critical investing ideas and devise strategies to invest for FIRE in any market condition. 

Basics of FIRE Investment

  • It entails savings and investing aggressively in the 20s and 30s to retire early
  • It is about focusing on reducing expenses and keeping them under control, less about boosting income
  • It involves following a low-cost investment strategy to boost returns

FIRE investment is about investing in assets that have the potential to beat inflation by a good margin in the long run

FIRE and Low-cost Investment Strategy

Investing for FIRE and low-cost investment strategies go hand-in-hand. It is key to the value creation process. The primary aim of any investment strategy is to take advantage of compounding, and in FIRE, if you are not using it in your favor to the fullest, it needlessly lengthens the time taken to reach the goal. 

For instance, opting for an expensive mutual fund instead of a low-cost index fund looks like a sensible decision but doesn’t favor the economies of investing. So let’s compare the returns of a regular and direct plan of a large-cap mutual fund to make it easier for you to understand how high costs impact your investment goals.

  SBI Bluechip Fund- Regular Plan   SBI Bluechip Fund- Direct Plan   HDFC Index S&P BSE Sensex- Regular
Expense ratio 1.72% 0.95% 0.40%
5 years return (as of 29th August 2022) 11.22%   12.15% 13.71%
7 years return (as of 29th August 2022) 11.90%   12.95% 13.39%
Value of Rs 1 lakh in a
5-year period
Rs 1,70,182 Rs 1,77,417 Rs 1,90,021
Value of Rs 1 lakh in a
7-year period
Rs 2,19,690   Rs 2,34,532 Rs 2,41,003
*Funds discussed here are for educational purposes, not a recommendation.

In the table above, you can see that just a percentage point increase in annual expense rate can significantly lower the return rate on your investments. In FIRE investment, where the financial stakes are higher, the impact will be much greater.

Similarly, if you look at an index fund that tracks either Nifty-50 or Sensex, it outperforms actively managed funds in the long term due to its low-cost investment strategy. The expense ratio of index funds is comparatively lower than any actively managed funds.

FIRE Investment and Bear Market

When you are in the market for the long run, you cannot escape the bear market, where returns get impacted severely. However, a bear market condition is a blessing in disguise for those saving for FIRE investments. It allows investors to invest at a lower price and experience more significant growth when the market conditions reverse. 

For instance, since the 2008 financial market crash, despite unfavorable market conditions on multiple occasions, Nifty50 has grown almost 8 times, outperforming returns of all traditional asset classes. 

Dollar-cost Averaging Strategy

Following the dollar-cost averaging investment strategy, popularly known as SIP in India, helps to smoothen your purchase price and ensure that you don’t invest all your money into stocks at high levels. In FIRE investments, bear markets are essential for long-term growth as it helps you revisit your investment strategy and make changes according to the emerging market trends to tap into growth. 

Diversification

While investing for FIRE, protecting your investments from volatility is as important as taking advantage of a market crash. Diversifying your investments in multiple asset classes and continuing to invest in a mix of relative winners and losers helps to minimize the overall portfolio loss. 

Invest for FIRE as per market conditions

Your investing strategy to attain FIRE should not be rigid and must take advantage of different market conditions. For instance, investing in sectors that perform well during a recession can help you balance your investment returns. When the rupee tends to depreciate against the US dollar, export-oriented and IT stocks perform well, as a significant part of their earnings comes through dollar revenue. 

So, identifying the sectors and stocks that weather the bear market better than others should always be your priority. 

Wrap up

FIRE doesn’t mean sacrificing all aspects of life to save for your retirement corpus. It’s all about investing smartly and making the right investment choices to achieve your financial goals. As an intelligent investor, you should always let your money do the work for you and not the other way around. 


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