Achieving FIRE. For my readers who do not know what FIRE means, it is Financial Independence, Retire Early. There is an enthusiastic movement of followers that is quickly gaining momentum. The movement is well documented by a fairly large number of bloggers. Google “FIRE” or “FIRE movement” and you get a fairly large number of hits. There are several variation of FIRE including Regular or Traditional FIRE, Barista FIRE, Coast FIRE, Lean FIRE, and Fat FIRE. The FIRE movement seems to have even survived the pandemic. Why is it so popular? Well, who doesn’t want financial independence and the ability to live a life free from the worries of money. In realty, most people want financial independence even if they don’t plan on fully retiring and instead pursue passions and dreams.
What is FIRE?
When you think about retirement, you probably envision someone in their 60s or older drawing on a pension or 401(k) and social security. In the U.S., many retire at 62 or 65. At 62 you can start receiving social security and at 65 you are at your full retirement age. The full retirement age is now 67 for those that are born in 1960 and later. Others wait until 70 to retire since your benefits increase. In addition, you can start withdrawing money from your 401(k) or IRA at 59.5 without a penalty. This is the normal path many take.
Adherents of the FIRE movement retire much earlier than this. Many retire in their 40s, some in their 30s, and a few in their 20s. What is the purpose of achieving FIRE at such a young age? There is more to FIRE than just building your assets and quitting work to do nothing. FIRE focuses on paying down debt to zero, investing your savings to generate passive income streams often in real estate, stocks, or index funds, and living a life where money is less of a worry. Achieving FIRE is not the same as building your emergency fund. Instead, it is about building what some FIRE bloggers call your FU money, the dollar value where you can walk away from your job essentially forever. The power of FU money is that it gives you more control. Those that are part of the FIRE movement may not yet be drawing on their 401(k) or social security but they are generating sufficient passive income to replace their earned income from a W-2. After achieving FIRE many focus on passions, such as traveling, or spending more time with family. However, some do not fully retire, they often keep working but no longer for a W-2. Achieving FIRE is more about pursuing your dreams and ambitions whether it is starting a new career, a new business, pursuing a hobby, or something else.
Skeptical about Achieving FIRE?
There is a good chance that you are skeptical and have your doubts about FIRE. How can one achieve financial independence and retire early at such a young age? Then you are much like me. However, you can read my first three millionaire interviews on people who achieved a net worth of $1 million at fairly young ages essentially following principles espoused by the FIRE movement. Young Dividend reached $1 million by age 30, Chris and Jenni at TicTocLife hit $1 million by age 34, Dividend Earner made it to $1 million by 43.
But attaining the millionaire status alone is not sufficient for achieving FIRE. The underlying rule of thumb is that when you achieve 25X of your estimated annual expenses you are considered financially independent. So, if your annual expenses are $50,000 per year then when you have a total net worth of $1,250,000 you are considered to be financially independent. You can calculate your FI number too and see how much you need to achieve FIRE.
But why 25X and not some other multiple? This comes from the 4% rule. The so-called Trinty study, which is in reality the nickname for an article called “Retirement Spending: Choosing a Sustainable Withdrawal Rate”. The results of the study showed that you can withdraw 4% of your invested assets (based on historical data) and have a pretty good chance of not running out of money before the end of a 30-year retirement. But if you are retiring early is 25X enough? Arguably it may not be. Hence, some adherents to FIRE focus on 33.3X, which has a higher probability of not running out of money.
How Do You Achieve FIRE?
Achieving FIRE is a process. There are plenty of blogs on the basics or steps to take on achieving FIRE. Some even cover how to actually invest your money. I will not go over those here. Some are more immediately actionable steps and others are more about lifestyle changes that take time. However, the general concept is to maximize your savings by reducing your expenses and increasing your income and investing the difference. Reducing your expenses is critical since $100 reduction per month is $1,200 per year. This translates to about $30,000 ($1,200 x 25) less in total net worth that you need for achieving FIRE. If you can maximize your savings early and invest you will be leveraging the power of compounding over a longer period of time and a much higher likelihood of achieving FIRE.
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Chart or Table of the Week
I have started a new feature for my Week in Review. This will be a chart of table of the week highlighting one or more dividend growth stocks. The screenshot below from Stock Rover* shows the top 10 yielding Dividend Aristocrats. The Dividend Aristocrats are stocks that have raised their dividend for 25+ and are in the S&P 500. In order, the stocks on this list are AT&T (T), Exxon Mobil (XOM), Chevron (CVX), People’s United Financial (PBCT), AbbVie (ABBV), Federal Realty Investment Trust (FRT), Realty Income (O), Consolidated Edison (ED), Franklin Resources (BEN), and Amcor (AMCR).
Dividend Increases and Reinstatements
Booz Allen Hamilton (BAH) hiked the dividend 19.4% to $0.37 per share quarterly. The forward yield is 1.6%. This is the 8th consecutive annual increase. Booz is a Dividend Challenger.
Fidelity National Information Services (FIS) raised the dividend 11.4% to $0.39 per share quarterly. The forward yield is 1.3%. This the 10th annual increase in a row. Fidelity National is a Dividend Contender.
Woodward (WWD) increased the dividend 100% to $0.1625 per share quarterly. The forward yield is 0.6%. Woodward previously cut the dividend in response to the pandemic.
3M Company (MMM) raised the dividend 0.7% to $1.47 per share quarterly. The forward yield is 3.4%. This is the 63rd consecutive yearly increase. 3M has paid a dividend for more than 100 years. 3M is a Dividend King and a Dividend Aristocrat.
Harley-Davidson (HOG) increased the dividend 650% to $0.15 per share quarterly. The forward yield is 1.5%. Harley-Davidson previously cut the dividend in response to the pandemic.
ALLETE (ALE) increased the dividend 2% to $0.63 per share. The forward yield is 4.0%. This is the 15th yearly increase in a row. ALLETE has paid a dividend for 71 years. ALLETE is a Dividend Contender.
Trane Technologies plc (TT) hiked the dividend 11.3% to $0.59 per share quarterly. The forward yield is 1.6%. This is the 10th consecutive yearly increase. Trane is a Dividend Contender.
Intercontinental Exchange (ICE) raised the dividend 10% to $0.33 per share quarterly. The forward yield is 1.1%. This is the 4th consecutive annual increase. ICE is a Dividend Challenger.
Microchip Technology (MCHP) increased the dividend 5.8% to $0.39 per share quarterly. The forward yield is 1.1%. This is the 8th annual increase in a row. Microchip is a Dividend Challenger.
Activision Blizzard (ATVI) raised the dividend 14.6% to $0.47 per share quarterly. The forward yield is 0.5%. This is the 11th yearly increase in a row. Activision Blizzard is a Dividend Contender.
Columbia Sportswear (COLM) reinstated the dividend at $0.26 per share quarterly. The forward yield is 1.1%.
Dividend Cuts and Suspensions List
I updated my dividend cuts and suspensions list two weeks ago. The number of companies on the list has risen to 511. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic.
No new companies were added to the list in the past week.
No missed companies were added to the list.
Dow Jones Industrial Averages (DJIA): 31,148 (+3.89%)
NASDAQ: 13,856 (+6.01%)
S&P 500: 3,887 (+4.65%)
The S&P 500 is trading at a price-to-earnings ratio of 39.6X and the Schiller P/E Ratio is at about 35.4X. These two metrics are down about one point this past week. Note that the long-term means of these two ratios are 15.8X and 16.7X, respectively. I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued. Note that we are starting to approach 40X and valuation levels near the top of the dot-com era.
S&P 500 PE Ratio
Shiller PE Ratio
Stock Market Volatility – CBOE VIX
The CBOE VIX measuring volatility dropped by one-third this past week to 20.87 after surging the prior week by almost 50% to 33.09. The long-term average is approximately 19 to 20. So, at this point we are just above the long-term average and trending down.
Fear & Greed Index – Achieving FIRE
I also track the Fear & Greed Index. The index is now in Greed at a value of 60, up 25 points from last week. This is after plunging into Fear the prior week.
There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.
Market Momentum is indicating Extreme Greed. The S&P 500 is 9.42% over its 125-day average. This is further above the average than normal over the past two years.
Put and Call Options are signaling Greed.
Stock Price Strength is signaling Greed. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the upper end of its range.
Junk Bond Demand is indicating Greed. Investors are accepting 2.14% yield over investment grade corporate bonds. The spread is down from recent levels indicating that investors are taking on more risk.
Stock Price Breadth is indicating Greed as advancing volume is 14.89% more than declining volume on the NYSE. This is upper end of its range over the past two years.
Market Volatility is set at Neutral. The CBOE VIX reading of 20.87 is a neutral reading.
Safe Haven Demand is in Fear. Stocks have outperformed bonds by 2.84% over the past 20 trading days. This amongst the weakest relative returns for stocks over the past 2-years.
The number of weekly new unemployment claims were up with last week at 779,000. This is down 33,000 from last week’s revised numbers. The 4-week moving average has been consistently above 800,000 for several weeks.
For some perspective, one-year ago weekly unemployment claims were only about 201,000. Currently we are 3X – 4X the normal level. The seasonally adjusted insured unemployment rate was 3.2%.
The ten states with the highest unemployment rates for the week ending January 16th were Alaska (6.4), Pennsylvania (6.4), Nevada (6.1), Illinois (5.7), Kansas (5.7), Connecticut (5.4), New Mexico (5.4), Rhode Island (5.2), Massachusetts (5.0), and New York (4.9).
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index (PMI) increased to 59.2 in January, up from December’s 57.1. Output increased at the fastest rate since August 2014. The rise in production was driven by stronger demand and a significant increase in new orders. New export orders rose at their fastest pace since September 2014. Raw material and transportation shortages, notably trucking, disrupted supply chains, increasing input costs. The longer lead times for inputs also led firms to increase their purchasing activity in January, resulting in the fastest rise in pre-production inventories since December 2019. Pressure on capacity and a faster rise in new orders lead goods producers to increase their workforce. The rate of job creation was the fastest in two years.
Refineries operated at 82.5% of operable capacity for the week ending January 29, 2021. U.S. crude oil refinery inputs dropped 80,000 barrels as compared to the previous week to a 14.6 million barrels per day average. Gasoline production decreased, averaging 8.4 million barrels per day. Total gasoline inventories increased by 4.5 million barrels and are about 1% below the five-year average for this time of year.
The U.S. Bureau of Labor Statistics reported the unemployment rate dropped to 6.3% in January, down from 6.7% in December. Employers added only 49,000 jobs. About half the drop occurred because of those who found work, while others stopped looking for work altogether and were no longer counted as unemployed. In January, job gains in professional and business services (+97,000) and in both public and private education (+119,000) were offset by losses in leisure and hospitality (-61,000), in retail trade (-38,000), in health care (-30,000), and in transportation and warehousing (-28,000).
Thanks for reading Achieving FIRE – Dividend Power Week in Review!
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