Monday, November 06, 2023

The FIRE Journey requires cultivation of Inner Strength (neigong)


In case anyone is wondering Ji Yong's beloved epic Return of the Condor Heroes has just been translated into English and is available for purchase. As my mother tongue was quite bad when I was a kid, I was unable to participate in appreciating this part of Chinese Literature until quite late in my life. 

I think what I really appreciate about Jin Yong's novels is the concept of the Wulin which denotes the society and milieu that the martial artists live in. The Wulin has its own rules of conduct and some acts are seen as being righteous and others as being dishonourable. I'd like to see myself as being part of different Wulins. I used to have a role in the tabletop RPG world, but now I am squarely in the financial blogosphere. 

If we apply this analogy of the Martial Arts Wulin to the Financial world, then players in the industry would also play a role similar to martial arts world in Ancient China.

In this case, IMHO, a fee-based advisor like Christopher Tan would be the equivalent of Wang Chong Yang, founder of the orthodox Quan Zhen Sect. He has pioneered a martial arts style called BTIR and literally published a Master Financial Planning Manual (Walter Kluwers) which I cut my teeth on, and gave me the confidence to eschew financial advice from commissioned advisors and cultivate my inner strength to attain FIRE over twenty years ago. 

Naturally, I see ILPs as some kind of poison that is spreading to the middle class of Singapore and kind of commissioned advisors who go into Tinder to look for prospects or use balloons to lure kids akin to Ouyang Feng, Poison of the West.

I don't really see myself as a hero or villain in this Wulin. I'm amoral, have my own economic interests, and aspire to be more like the Lord of Peach Blossom Island. 

Today I just like to comment on the recent Endowus event that Christopher Tan was made to comment on FIRE. I think overall it was an insightful presentation and I would wanted more from the master, but I cannot in my good conscience agree totally with Christopher Tan over his comments on the FIRE movement. 

Christopher Tan made that comment that FIRE is not suitable for everyone and it is possible to end up missing out on life if one were to totally devote themselves to the pure attainment of Financial independence. 

In theory, Christopher Tan is right that if one were to devote too large of an allocation to dividends stocks, there may be no budget left to really enjoy yourselves. He is supported by a large amount of finance literature, ranging from financial planning books from the US that talk about saving 10% of one's income to books like Die With Zero which recasts travel as an investment that produces memory dividends. 

In practice, folks rarely attack a financial problem with this level of fanaticism. 

My rebuttal is as follows:

* cues flute music *

a) Some people actually enjoy FIRE

Christopher Tan in his wisdom knows that FIRE is hard and most folks would not enjoy attaining it. But over time I've noticed that folks who are INTJ and throng the forums on financial independence really enjoy going through the process of doing it. For ENTJs like me, I want the power that comes with FIRE, but I will not retire if I have a good career and a high status in my life. 

(A five-digit monthly dividend is good, but appearing in Money Mind is sometimes more fun! Why not do both? ) 

For someone like me who trains people for a living, I do know that if FIRE is introduced to an INTJ/ISTJ before they get pitched by an FA, I win because I know I have an alternative that fits that personality type and some commissioned FA down the road loses a sale. 

b) You do not need to complete the FIRE journey to enjoy it

Fans of this blog liked my initial idea of accumulating $300,000 as a target to get some passive income going but I realise that this goal is too intimidating for some people. Instead, I'm a strong advocate of setting aside $24,000 at around $2,000 per month to get an average of $100 of dividend income every month within a year of learning about FIRE. 

Trying to get $100 a month just requires setting aside about 50% of the median income for one year. If you quit after you attain your goal, it's fine because the $100 increase in income is something you can keep for a long time to come. 

This is money that you can earn beyond your day job. You can pat yourself on the back.

c) You may be missing out on a little bit of life right now just to get a better life later

Insight from economics is that while we do like to spend money now, we can also find spending a larger amount in the future more satisfying. The extent of this is dependent on our personal rates of time preference.

People who have investment portfolios can enjoy a bit of their money as they go along. I did a spreadsheet to optimise a person's Expected Utility on a portfolio of local blue chips and it's possible to spend about 2.8% of your local portfolio and adjust it upwards based on its total asset size every year. The key idea is that investment gains beyond 2.8% will enlarge the size of the portfolio and enable a larger expenditure in the future after compounding, but this entails farming half your dividends back into the stock market.

So in practice, if you start early, FIRE will not stop you if you have a desire to see the Arctic before you are 35. You can still pay for your first date with your future wife in Saizeriya.  

d) The FIRE journey is like the cultivation of neigong.

We have to accept that ultimately the journey to attain dividends requires discipline and plenty of learning. Not everyone in the Wulin can cultivate their inner strength and become a martial artist. Martial artists still need to be served food in an inn. Someone needs to till the soil. 

I think it's fine to decide to take on the FIRE journey or to pursue other interests in your life. But what I find puzzling is that some folks would go spend a weekend at a financial conference and still think FIRE is challenging.  

I think the only downside is that the Jin Yong Story will not be about you at the end of the day. 

( But you can still be the protagonist of a story about sparkly vampires. )

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