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Not everyone wants to retire early. But while the FIRE movement is associated with its core idea of financial independence and early retirement, I think it can help focus the mind on some healthy financial mindsets, whether or not early retirement is one of them right now.
Here are three steps from the FIRE movement that I think could make sense for many investors in 2024 and beyond.
Make time work for us, not against us.
One of the central ideas of the movement is that time matters. Investing money for five years immediately before you retire can have very different results than investing the same amount for five years decades before you retire.
To illustrate, imagine I invest £100 a month in a stocks and shares ISA with an average dividend yield of 5% over the five years just before I retire. When I retire, my ISA would be worth £6,800, around £800 more than I had invested.
What if I invested the same amount (£100 a month) for the same period (five years) but started 30 years before I retired and, after five years, maintained the 5% annual gain without investing new funds?
By the time I retire, my ISA would be worth it. over £23,000. It is evident that time can be an investor's friend.
Further in, further out
Is a 5% compounded annual gain realistic, considering both capital gains (or losses) and dividends?
I think it is, and in fact the dividend yield of some stocks I own, such as British American Tobacco and Vodafonecurrently it is approximately double.
However, some caveats need to be made. Prices can go up or down and dividends are never guaranteed.
An investor's performance can also be significantly affected in the long term by fees and charges, so I would choose my ISA or share trading account carefully to find one that is well suited to my own circumstances.
However, all things being equal, it is a fact that the more I put in, the more I can get out in the future.
Not everyone wants the kind of haircloth existence favored by some more avaricious followers of the FIRE movement. There is more to life – including financial needs – than investing alone.
However, generally speaking, when I think about how much I should invest, I would focus on maximizing the amount within my means rather than thinking about what is the minimum I could aim for.
Make a plan and stick to it
Another thing I think the movement gets right is the understanding that great successes rarely come unsolicited.
Whether a financial goal is to retire early, buy a house, or aim to make a million, I think it's more likely to happen with planning.
Successful investors usually know what their goals are and have a plan for how they intend to achieve them. They monitor their performance and adjust their course along the way.
An investment plan of this type can be very simple. But it can be a powerful way to continue aiming for personal goals.
