Between FIRE Investing and Traditional Investing

There are many attainable ways to engage in hybrid investing, to draw from the ideas and practices of both the traditional and FIRE investing models. In the FI (Financial Independence) community, this approach is sometimes called Slow FI.

To highlight one way these two approaches could be hybridized, let’s look at some of their key differences…

But First, What’s FIRE Investing?

Financial Independence, Retire Early (FIRE) refers to people who save and invest extremely aggressively with the intention of achieving financial freedom long before typical retirement age.

Comparing Mindsets

TRADITIONAL
Set aside what is needed to achieve financial stability, then live your best life.

FIRE
Sacrifice now for financial independence in the future.

HYBRID
Get intentional about your budget. Allocate discretionary funds to what matters most while reducing, restricting, or eliminating other spending.

Pre-Retirement Benchmarks

SAVINGS

TRADITIONAL
At least 10-13% of earnings (including employer match)
– Set aside 3-6 months’ salary for emergencies
– Save towards long-term goals (child’s college tuition) and lump-sum purchases (vacation house)
– Fully fund retirement accounts

FIRE
50-70% of earnings
– Invest, invest, invest
– Invest wisely

HYBRID
20-40%
– Contribute to both retirement and brokerage accounts
– Over time reduce retirement funding to what would offset taxable income or employers are willing to match

DEBT

TRADITIONAL
– Your mortgage payment should not exceed 28% of monthly income
– Total debt should not exceed 36% of monthly income
– Prioritize paying off the debts with the highest interest rates

FIRE
Avoid it.

HYBRID
– Your mortgage should be less than 20% of monthly income
– A primary home mortgage should be your only debt

When Can/Should I Retire?

TRADITIONAL
At 65
– Provided your savings, pension, social security, etc. will cover 30 years of expenses at an inflation adjusted rate of return

FIRE
Between ages 30 and 40
– After saving at least 25 times (or 33 times) your annual expenses
– When you’re able to live on 4% (or 3%) of your investment portfolio

HYBRID
Between 50 and 60
– Once you’ve saved enough to live comfortably on around 4% (5% with higher stock holdings and dynamic withdrawals) of your portfolio
– Retirement is not a single event, but a continuum that runs from fully employed to doing what you love, whether or not it provides income

Which Approach is Better?

Each of these approaches to investing has benefits and drawbacks. In the end, although there is no one “right” way to invest, there is probably a way that is more right for you. The tried-and-true traditional method may suit your needs, wants, and goals.

If you hold financial independence as one of your highest priorities, perhaps you should consider becoming a FIRE investor.

If you feel being “on FIRE” is too extreme, but you’re certainly ready to smolder, the hybrid investing approach might be just what you’ve been looking for!

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