Toronto residents Kristy Shen and Bryce Leung did something most of us could never imagine. In 2015, while still in their early 30s, the married couple decided to retire from their engineering jobs. They did this by saving their money, driving down their expenses, renting (not buying) a home, and investing in stock-market index funds.
They’ve chronicled their story on a blog and in their 2019 book, Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required. It’s one of several books written by people in the FIRE (financial independence, retire early) movement, and in it they explain how they’re able to live off the proceeds of a $1-million investment portfolio.
Shen and Leung achieve this by spending just four percent—$40,000 per year—and ensuring they have a sufficient backstop in cash in case of a sharp downturn in the stock market.
”We haven’t worked for the last five years and we’ve been travelling the world, writing the blog and writing the book,” Shen, 37, told the Straight by phone from a Bloor Street Airbnb in Toronto. “Every single day keeps getting better.”
They’ve visited dozens of countries, most recently Indonesia, before returning to Canada just as the COVID-19 crisis was intensifying. They were pleasantly surprised to learn that Airbnb rates had crashed.
They’re paying less for a two-bedroom unit on the 33rd floor with a view of the CN Tower—$56 per night—than their friends are forking out on long-term leases. “It’s going to drop our living expenses from $40,000 to $35,000 if it keeps up like this,” Leung, 37, said cheerfully.
The value of the couple’s investment portfolio dropped by six figures on a single day when North American stock markets went into a free fall in March.
Although they expressed sadness for those facing serious health consequences from COVID-19, they remained remarkably upbeat about their financial future.
They’re not alone in this regard. The Straight reached other millennial Canadians in the FIRE movement who said similar things.
One thing they all agreed on is that during a bear market—which is defined by market indices falling more than 20 percent from the peak—stocks are on sale.
“There are actually really good opportunities for millennial younger people, who have a longer investment horizon,” Shen said.
Leung pointed out that because they’ve invested in index funds, their portfolio will never be obliterated because not every company can go to zero. He cautioned that the couple is not saying that the market has necessarily bottomed out, because that’s impossible to predict. But he emphasized that through “dollar-cost averaging”—i.e., investing the same amount each month in an index fund—it helps people ride out the highs and the lows. “So when the market drops, you pick up more and more and more units.”
The millennials, sometimes defined as those born between 1980 and 2000, are the largest generation in U.S. history, even larger than the baby boomers, according to Goldman Sachs. This means that they’re going to have an increasing impact on equity markets in the years to come as their wealth accumulates.
Millennials are used to disruption
For many younger investors, this is their first bear market. Jessica Moorhouse, a 33-year-old Toronto financial planner, recalled how difficult it was living through the 2008 financial meltdown just as she was hoping to enter the workforce. Those difficult times spurred an interest in financial issues and led her to launch a blog.
“It’s very fresh in my mind,” she said.
Moorhouse believes that many young people have been spooked by the recent downturn, but she feels that this fear stems from a lack of understanding or knowledge.
“I have faith in humanity,” she said. “I have faith people will find a solution for this health pandemic. I have done so much research and reading that I do see a pattern.
“The future may not happen exactly like the past,” Moorhouse continued, “but if you look at the past 100 years, that’s a pretty good template for what could possibly happen in the future.”
As the first generation of digital natives, millennials have no difficulty using technology to instantly gain access to price comparisons, product information, and data about the investment markets. Many, like Moorhouse, also came of age during a disruptive period: the clampdown after the 9/11 attacks. A fair number of them, including Leung, were burned by the global market meltdown of 2008.
As a result, many are more accustomed than those of older generations to dealing with transformative changes.
Shen, for instance, grew up very poor in a village in the Chinese province of Sichuan. There, for a while, her family only earned 44 cents per day before they came to Canada.
Another member of the FIRE movement, South Surrey resident Bob Lai, also knows what it’s like immigrating to a new country. He was born in Taipei, and his family moved to the seaside community of White Rock when he was 13 years old.
“It was interesting,” Lai, 37, recalled in a phone interview with the Straight. “We didn’t really learn any English beforehand. We knew basic phrases. The first year was a pretty big challenge.”
He said that he’s been inspired by his father and a cousin, who each retired in their 40s. In 2011, Lai and his Danish-born wife, Ayoe Ingemann Lai, had an epiphany: if they tracked their net worth each quarter, lived frugally, and generated more passive income, they could be financially independent by their mid-40s. One of their keys has been to develop dividend income. It has reached $23,000 per year, according to an interview Lai gave to Forbes.com earlier this year.
Lai studied physics and engineering in university and now blogs about financial independence at tawcan.com. According to him, one misconception is that everyone in the FIRE movement is a cheapskate. In fact, Lai and his wife like to travel, periodically going to Denmark and Taiwan.
“It’s not a fad,” Lai said. “It’s a different lifestyle. It’s living below your means and understanding what brings happiness to you. Is it buying a luxury car? Or is it travelling? It’s finding what works for you.”
In his case, it means not ordering 200 cable channels that he’s not that interested in watching. Lai and his wife haven’t even had a TV in their home for 10 years.
And he insisted that gaining financial independence is a team effort for couples. If one of them isn’t on board, he said, it makes it exceedingly difficult for the other partner to achieve his or her goals.
For them, the key is to set aside enough each month to keep investing in the market.
Young investors keep FIRE alive
However, he also admitted that the recent stock-market downturn was “interesting”.
“Well, our portfolio dropped, I think, by something like over $200K now,” Lai revealed. “I still sleep at night. I’m not worried. For us, we’re still in our accumulation phase, meaning we’re still buying assets to build our portfolio.
“For me, this is a good opportunity,” he added. “I actually welcome this. I’ve been asking for a bear market for years so that we could pump a lot of money into the market—buy stuff for a discount—and then, eventually, things will recover.”
Unlike many others in the FIRE movement, Lai doesn’t restrict himself to index funds. He also buys individual stocks because he wants to increase his dividend income.
“We invest in things we use on a daily basis, like banks, cellphone companies, utility companies,” he said.
He also expects crude oil and natural-gas prices to eventually pick up again, though he’s not as optimistic about the airlines.
“It will be interesting to see how the REITs (real estate investment trusts) are doing, going forward,” Lai said. “If these small businesses are closing indefinitely, that will hit the REIT sector.”
Lai acknowledged that those in the FIRE movement are generally not impulsive people. These are young adults who are perfectly capable of long-term planning, an activity that’s rooted in the prefrontal cortex of the brain.
In this regard, they may have things to teach others facing severe money challenges as a result of losing family income in the COVID-19 pandemic. Lai advised that couples encountering financial hardships should really examine their future over the next year, five years, and 10 years, rather than thinking they can simply defer their mortgage payments and continue with their previous lifestyles.
“Can you start investing $100 a week?” he asked. “Or even $100 a month? It’s like slowly building that investment instead of thinking paycheque to paycheque.”
Early retirement looms without high incomes
A 33-year-old downtown Vancouver renter, Stephanie Williams, has been planning to retire early for many years.
She told the Straight by phone that it’s common for FIRE people to develop multiple income streams.
This makes them more resilient in the case of unexpected financial circumstances, like a drop in stock-market values or a sharp increase in the unemployment rate. She noted that there are quite a few tech workers in the movement, as well as doctors and dentists.
“Most people who are involved in FIRE are very smart people,” Williams emphasized. “That’s what they have in common.”
Williams is a receptionist for an accounting firm and is working from home during the pandemic. Her 31-year-old partner, Cel Rince, is an editor who also works at home.
They’re coauthors of Incoming Assets: A Guide to Affordable Living in Vancouver and Beyond. They're hoping to retire within two or three years, even though they’re not high-income earners.
According to Williams, they would need an investment portfolio worth about $700,000, which is achievable in that time frame if they continue to invest in index funds.
She doesn’t expect their income to drop to zero because Rince will continue taking on editing projects that interest him, on a part-time basis.
She also thinks that she will make money from time to time during retirement. And that will be sufficient for them to live on four percent of their investment portfolio each year.
“That would actually be all the income we need,” Williams said. “But we want more security first.”
They’re not high-income earners, but they’ve still managed to invest regularly by driving down their expenses to $28,000 per year. That’s accomplished by not going to restaurants, not owning a car, and not buying alcohol.
“We’re not going to be having kids,” Williams added.
If there’s one piece of advice that they have for other millennials, it’s not to sell their investments in a market downturn.
“The worst thing you can do is sell when it’s falling,” Rince declared. “That’s the absolute worst thing you can do. You need to stay the course and wait for the market to recover.”
Then he recalled once reading an article reporting that the best investment returns were achieved by people who were dead. That’s because they never sold their holdings, which continued appreciating in value after they were in the grave.
That brought forth a wry observation from Williams.
“The lesson here is, as far as investing goes, be as much of a dead person as you can,” she quipped.