Try not to get burned..
I’ve been formulating a theory of future events that may cataclysmically hurt early retiree’s who invested the majority of their wealth in financial assets.
The theory goes like this: the Fed will initiate rounds of quantitative easing in attempts to either A) stimulate the economy and/or B) manipulate the economy. This will cause inflation to rise and the financial markets perceived value to rise. Neither of these effects are true benefits to the economy.
The FIRE people will see their financial asset portfolio drop by up to 40% to account for the market correction from quantitative easing and a general mismanagement of the world economy. After such a massive drop, the covenanted 4% safe withdrawl rate on the invested principal will drastically decrease the investor’s monthly economic resources. Which will lead to a decrease in lifestlye along with a looming need to return to the workforce if the portfolio has fallen too much leaving little confidence in the investor’s mind that his money will outlast his natural biological life.
Multiple this story by the hundreds of thousands and we’ll see lots of old skilled people entering a workforce wherein they have not been growing their careers, will have to start again making ~$50K per year, and a mask of bitterness may be felt in their energy fields as the FIRE lifestlye didn’t quite work out since the macroeconomics didn’t coordinate with their economic strategies and goals.
I believe a story similar to the above will happen in the coming years. Ray Dalio is predicting this next recession to be a long, painful, drawn out financial market correction. This acts as additional fooder in my belief that investing in real assets is the best investment strategy to take moving forward in a investor career.
Put simply, it will be hard to make money in financial assets (stocks, bonds, mutual funds) and easier to make money in real assets (real estate, precious metals).