In a world of instant gratification, the concept of long-term investing might seem outmoded. But for those already eyeing retirement at an early age, it remains a prudent and powerful approach. While not so obvious, long-term investing is an integral part of the Financial Independence, Retire Early (FIRE) movement that’s been gaining traction over the past few decades.
The FIRE movement revolves around the idea of saving and investing aggressively—usually between 50 to 75% of income—so you can retire significantly earlier than traditional retirement ages.1 At its core, the FIRE movement embraces the ethos of long-term investing. Here’s how these seemingly disparate concepts actually complement each other in several ways.
Consistency and Discipline
One of the primary principles behind long-term investing is discipline—continually sticking to your investment strategy regardless of market conditions. This aligns seamlessly with the FIRE movement’s mantra of aggressive saving. Being disciplined with savings allows you to consistently add to your investment portfolio, enabling it to grow over time.
Compounding Fuels the FIRE
Long-term investing and the FIRE movement both leverage the power—often seemingly magic—of compounding. Compounding involves reinvesting the returns on your investment, creating a snowball effect. Over time, you’re not just earning returns on your initial investment, but also on those reinvested returns.2 This exponential growth is a cornerstone of the FIRE movement’s strategy to accumulate wealth rapidly.
Diversification and Risk
Long-term investment strategies focus on diversification, a practice that reduces risk by spreading investments across a variety of assets. This approach can provide a degree of protection against the volatility of the market—a critical consideration for individuals targeting an early retirement.
Both long-term investing and the FIRE movement prioritize value-driven investments. These might include assets such as stocks that consistently pay dividends and therefore have a history of providing steady returns over the long term. By focusing on assets that offer steady returns, you’re building a stable financial base for your early retirement.
Finally, long-term investing emphasizes sustainability—an aspect that’s crucial when planning for an early retirement. It’s not just about accumulating wealth but ensuring that your financial resources last for your extended post-retirement lifespan. Through a focus on long-term, sustainable investments, you’re less likely to run out of money mid-way through retirement.
With discipline and a long-term investment mindset, the dream of an early and financially secure retirement can become your reality. Remember, patience is the companion of wisdom. When it comes to investments and the road to early retirement, there are no shortcuts. A long-term investment strategy allows you to build a robust financial foundation, improving the odds of retiring early and on your own terms. But be a bit careful of what you wish and work for: with the average retirement now spanning thirty years, starting at age 62, it’s crucial to consider the financial implications of retiring in your 50s, 40s, or even 30s!
Disclosure: This information is for educational and informative purposes and shall not be considered a specific recommendation. Readers are advised to speak with their advisor at JL Bainbridge to determine their specific recommendations that meet their investment objectives and to review their portfolios. The material being provided is thought to be accurate. However, the information is compiled from multiple resources and may become outdated or otherwise rendered incorrect by new research or corrections without notice. J.L. Bainbridge & Co., Inc., is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. It should neither be assumed that future results will be as profitable or that a loss could not be incurred. For more information related to our firm, please see our disclosure brochures at jlbainbridge.com and https://adviserinfo.sec.gov/firm/summary/108058.