#14 The Missing BIllionaires - Can we invent a new form of FIRE from all this?

 

The Missing Billionaires by Victor Haghani and James White begins with a brilliant idea that with better financial decision-making tools, there would have been many more billionaires today. It then goes into first principles tying up returns, risk and a person's risk aversion to come up with useful formulas on position sizing. Later on, concepts like Expected Utility are added to the mix to assist readers with decision-making. I think this book would have been much better as a textbook with worked examples to illustrate real-life investment problems. However, some glaring gaps exist in the book, such as how the volatility of an asset class is estimated. I'm lucky that I've done some programming work to do this with Yahoo Finance data because otherwise reading the book will only give you some murky theoretical ideas that are hard to apply in your investment lives.

But all things being said, I would not do a chapter-by-chapter review if the book does not have ideas that are monetizable. There is definitely some room to make these fundamentals the cornerstone of a new investment course for beginners with some finessing in 2024. Of course, to be able to sell this course would be determined by how much I can automate the calculations and hide the equations from the actual student. I would be creating a spreadsheet for local dividend investors using these concepts to convince myself that it can add value to retail investors. 

I think more interesting, concepts of the book can create a new kind of FIRE called PlumpFIRE.

I've always found FATFIRE hypocritical as folks who want to do this are quite high-powered executives who probably successfully FIREd but enjoy working so much, that they look for an excuse to make their lives more comfortable. Sometimes FATFIRE folks may even be responsible for the toxicity at work. 

A more reasonable form of advanced FIRE, which I call PlumpFIRE can be taken from some concepts of the book. 

Here's what PlumpFIRE looks like:

• As many annuities as humanly possible to generate a bare minimum standard of living. I suggest using CPF-LIFE at x1.5 of FRS to generate about $1,500 in terms of today's monthly income. Use the Standard plan to max out your purchase of annuities as this is money your kids do not need. Bonus points if you can defer your CPF-Life payouts.
• A large diversified and balanced investment portfolio that can be globally diversified ETFs. This portfolio fluctuates in value and you spend 2.5% of its value by liquidating stocks or dividends every year. The idea is that by spending way less than the returns of the portfolio, you can expect an increasing capacity to spend every year as the portfolio gets bigger, enjoying more spending in your later years. This is also much safer from sequence-of-return risk. For this to work, you must be able to adjust your standard of living from portfolio fluctuations, so the Bengen 4% rule does not apply to you.
• A portfolio of $1,000,000 can generate $25,000 a year. Plus $18,000 from CPF-Life. This results in about $43,000 of expenses a year, which is three times the basic standard of living for a 65-year-old in Singapore. 

You can always carry on working until your portfolio hits $2,000,000 if you want to spend more money. The odds are over time, your payouts will grow over time because your spending rate is low.

 I think PlumpFIRE will be a good mid-point between FIRE and FATFIRE.

If you have attained FIRE, I think PlumpFIRE is the next milestone.