I follow the FI (financial independence) or FIRE (financial independence/ retire early) community. It’s not that I necessarily want to retire early, but I do enjoy the talk about saving, investing, and earning more.

I think referring to it as FI instead of FIRE is better and overall more accurate. There is almost nobody who actually retires really early and stays retired.

There are some characteristics of the FI community that are appropriate. Some examples are having an emergency fund and not carrying credit card debt. Then there are others that I don’t disagree with but find somewhat strange, such as getting travel rewards from credit cards.

There is nothing wrong with getting travel rewards, and I myself have recently started with that, but I just don’t think it is a big pillar of FI. You can get cash back from using a credit card too. If you are going to travel, then maybe it is smart to use travel reward points, but it isn’t going to be a big difference between reaching FI and not reaching FI as far as I’m concerned.

There are many disagreements within the FI community that always make for a good discussion. For example, there is always the debate of whether to pay down a mortgage or to invest the money. There isn’t necessarily a right answer, but the discussion can be informative.

One thing that has seemed to become a pillar of FI, especially within the United States, is buying and holding low-cost cost stock index funds. This is not universal, but it seems to be a significant majority opinion now that it is best to follow someone like J. L. Collins (author of The Simple Path to Wealth) and count on the stock market always going up in the long run.

Do Stocks Always Have to Go Up?

If you look at modern history in the United States, there is no denying that the major stock market indexes have always gone up in the long run.

Of course, it all depends on the definition of the long run. For some people, they may think that is just five years. If that’s the case, then stocks haven’t always gone up in the long run.

But just because that has happened in the past, it doesn’t mean it has to happen in the future. I like to point to the example of Japan.

The Nikkei peaked in 1989. It is now 34 years later, and the index still has not reached the level it hit in 1989. If that isn’t the long run, I don’t know what is.

Japan is a first-world country. We aren’t talking about Bangladesh or Ethiopia. It’s not to say that what happened in Japan will happen in the U.S. It’s just that it’s possible.

If stocks in the U.S. fell by 50% and stayed down for 10 years, I think most American investors would not be prepared for this. I think some of them would be devastated, and it would significantly impact their future plans.

Overexuberance

I listen to many different podcasts and YouTube channels. Some I listen to more regularly than others.

Lately, I have detected a bit of bubble mania from some commentary I have heard. I also strongly detect it from comments I have read.

It is a mentality that stocks will go up. If they go down, you should just stay the course. In fact, you should just buy even more if they go down, say the bulls.

Some podcasters have stayed consistent, even if I don’t completely agree with their investing advice. For example, Brad from the ChooseFI podcast believes in buying and holding low-cost index funds. But he has been saying that for years, and he isn’t pushing it any harder today than he was then. So while I think investors should diversify far more than what he does, I don’t think he is wrapped up in the bubble mentality right now. I recommend that podcast for its other great content anyway.

I have heard others though, and they act like it is a given that real estate prices will just keep going up and stocks will keep going up. They don’t actually say this, and they may even say that there could be downturns, but their advice reflects that they think everything will just keep booming.

I have heard people get all excited because they have made so much money on their house. But these are people who haven’t actually sold their house. They just see the value on Zillow has gone up. So they are excited to buy more properties and do the same thing again.

This whole thing is a recipe for disaster. I really like the FI community overall, and I think there is great advice out there. I also believe that the FI community will be far better prepared if a hard recession comes only because they will tend to have savings and not carry some of the worst kinds of debt such as credit card debt.

Still, I think a major asset deflation will destroy a lot of plans for a lot of people. I am cringing when I hear people talk of using more leverage to buy more real estate. I am cringing when I hear people talk about putting all of their investments in stocks.

It is even worse when I see the influencers (for lack of a better word) who are encouraging this. When someone has “made money” on their house that they didn’t sell, I don’t think the right advice is necessarily to take on more debt and buy more houses, as if it can be easily replicated. That is especially true during this time when mortgage rates are high and housing prices have not come down much in most areas.

Using Caution

There is a point where using too much caution is detrimental. You can see this in extremes. Many of the self-made billionaires in this world are really rather reckless. They took major chances and it worked out for them. You don’t hear about all of the people who took big chances and didn’t become wealthy.

I think the FI community is generally a conservative bunch, financially speaking. They believe in saving money, and oftentimes this means living frugally.

So I don’t understand why some seem to be throwing caution to the wind. The only explanation I have is that it is part of the bubble mentality.

When the bubble pops, it is going to be a shock to a lot of people. The ones who were more cautious at the peak of the bubble will be better off than those who were more aggressive and thinking that the good times would never end.