What is particularly heartwarming for dividend investors who own banking stocks is that they have surged as interest rates decline. This surge represents meaningful attempts to offset lower net interest margins with wealth management fees. As an investor in all three banks, I believe in this thesis, but I maintain that investing in REITs for the next year or so is better. Based on my backtests, rising interest rates favour banks, and lowering interest rates favour REITs.
I can't help but detect attempts by banks to move very gingerly into FIRE territory recently, but it seems that positioning a banking product as an aid to FIRE is a tough sell, given how stingy the movement is when it comes to investment expenses.
But lately, I disagree with the idea that FIRE can be supplanted with FIRM - the Financial independence, retire meaningfully movement. As a bank stock investor, it is puzzling to me how this can meaningfully raise wealth management fees.
It also is a veiled attack on our movement that warrants a firm response.
Before I begin, let me understand how FIRM works, given that no formal definition exists. The idea is that leaving the workforce early can lead to loneliness and even early death. Therefore, it is better to take a more conventional approach and save about 10% of your income to reach retirement later. While not explicitly stated, the person is invited to use a financial institution to do the strategic allocation for you so that you can focus on your day job and hobbies.
Here are my points for readers contemplating FIRM, an approach endorsed by financial institutions, versus FIRE, a grassroots movement of many who own financial institutions.
a) Does FIRM imply that FIRE aspirants live a life devoid of meaning?
As the incoming DBS CEO has a prestigious Oxford PPE degree, she might know what a false dichotomy is. The question is whether, if I live on 10% of my income, my life is somehow less meaningful than that of someone who lives on 90% of their income. Is saving inversely tied to meaning?
Over the years, there have been FIRE folks who have adopted a Stoic philosophy of life. They might be environmentally conscious and find that this extreme form of frugality gels with their outlook on life.
Asceticism can be a life a lot more meaningful than conspicuous consumption.
Some early retirees can be way more philosophical than many bankers; I can name Ashish Kumar as a gentleman who has developed his own approach to early retirement, which is a little more sophisticated than most relationship managers I know.
b) The dangers of conventional and late retirement cannot be underestimated.
I recently lost two friends, both aged 49. One was overworked as he was a warrior at the frontline of the COVID-19 battle. I felt that his aggressive cancer diagnosis came from the toxic and political workplace he worked in. He was manipulated to confront his incompetent supervisor, and in revenge, his job scope grade was quietly shrunk without his knowledge. The second was an unemployed IT professional who took his life about 2 months into his new job. He was despondent and withdrawn after losing his previous job. It was difficult for me to attend two wakes in a single week.
As my friends died, there was simply no justice for what they endured at work.
I've done a lot of work at this level; if we track PMET salary data, we can expect a 5% increment when we start work until age 45 when it mysteriously tapers off. This is also the age when Gen X faced the largest amount of ageism; if we take the risk of ageism and retrenchment seriously, we must confine the buildup of our dividends portfolio to be complete before entering this age of chaos. If we shuffle our feet and start planning late at age 35, then at $2000 monthly savings compounded to $500,000 within a decade, we will need an impossible 14.1% return to meet our deadline.
Planning for retirement is not mathematically feasible for most Singaporeans, given what's waiting for us in the workplace in our 40s.
I was a pioneer of the FIRE movement because I started work around the time of the Dotcom crash, and I saw the outsourcing wave affecting a lot of senior engineers of my generation. Now, AI is expected to replace some of the headcounts.
c) Financial institutions may not dare to talk about specific performance that can enable retirement to actually happen
While there is much sturm and drang about how meaningless our lives are, we are not getting the specifics. We need to get under the bonnet and know how our investments behave.
- How transparent are our investment fees when we buy a product? Can we find the full amount on a website, including trailer fees?
- What are the standard deviation and Sharpe ratios accompanying the latest results for these funds?
- Given our risk appetite, based on Merton's Share, what is our allocation for each asset class?
- Can a Monte Carlo simulation show us the probability of success of our retirement plan?
If financial institutions could meaningfully discuss numbers and probability, we would have a better idea of which model suits us better.
So, what can you do as a reader?
Wealth management marketing will evolve as interest rates drop. If you see that FIRM will occupy the minds of many who read about it, the solution is simply buying local bank stock.
For example, if DBS can credibly raise the dividends from 54cts to 60cts a quarter, there's still room for a 6%-paying blue chip. As it has endorsed a message that challenges the existential meaning in my life, I should demand 60cts in 2025, right?
In fact, use your CDP, and you can attend an AGM every year—and you may yet fight for a sumptuous buffet spread!
No management fees, no capital gains or dividends taxes.
Maybe in next year's Seedly festival, I get to debate this topic live in front of everyone!
If you're not investing, it's fine.
Don't let a financial professional tell you whether your life has any meaning. This is something you can figure out yourself.
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