Hi all. As one of the most prominente pro-FIRE (and pro-FIRE-then-EA ) voices on the Spanish-speaking EA Slack, I was pointed here in case I could add something useful. There’s really not much, since the OP clearly either is already on the FIRE community or has done his homework really well. However, I wanted to clarify a couple of points.
On “The FIRE/EA conflict” section, the OP presents the source of the funds donated as potentially problematic. I’d like to emphasize that this viewpoint, while being, as far as I know, nearly universal within EA spaces, would be seen much less as a given within FIRE spaces. The FIRE position, roughly summarized, would be “money is money”. That is, if you want to do good, and want to use money for that, you should be agnostic re: its origin. Drug money or church money, they buy the same number of mosquito nets. Or, if you prefer your Latin, “pecunia non olet”. Besides belaboring the point, this is mostly so you are aware of this difference in assumptions, if you’re trying to get a FIRE-enthusiast “into the fold”, or nudge her towards “ethical”, ESG or not, investments.
As for “are likely to take a more active approach to selecting their own investments that most people”, I would point that the mainstream position within FIRE is precisely the opposite, that is, that passive/indexed investing is preferrable, at least until well into the accumulation phase (in the vernacular, until you are already wealthy), and for most, even for the whole duration of the journey. Even the Oracle of Omaha has recommended it for his own widow-to-be on his will: “On my death, there’s a fund for my then-widow, and 90% will go into an S&P 500 index fund.”. While there is a subsector of FIRE who places very much emphasis on security selection and overperformance (being, on this, more a branch of usual finance than personal finance, and only different from most on their frugal habits), it is generally understood that most people do not have either the temperament or knowledge needed to pull this off reliably. And “reliability” is the name of the game. The idea is that many or most professionals, able to generate income steadily, should be able to eventually retire. While many, or most, people, should sensibly leave the management of their wealth to professionals, in the narrow sense of passive/indexed investing using mutual funds run by professional managers.
On “The Case for FIRE-EA”, the OP states that “stashing away a significant sum of money over the course of several decades, while there remains a great deal of avoidable suffering in the world, will feel instinctively wrong to many with an EA mindset”. However,
a) Not only the FIRE approach is perfectly compatible with the Giving What We Can pledge (since usual FIRE objective is upwards of 50% savings rate, thus can be safely lowered to 40% at the “mere” cost of 5 additional years to retirement − 21.6 years vs 16.6years, with some assumptions).
b) This approach is implicitly maximalist, in the sense that any personal consumption funges against the objective of donating. And since we know that most donors, even EA donors, aren’t maximalist being as frugal as they can be to donate, we should be agnostic about what is the destination of the surplus. I understand there is no moral case for saving being better than consuming. Plus, 10% is a good ticket to admission of being a good person, and a good Schelling point.
c) “The value of donating time or money now is or may be greater than doing so at a later date.”. I only want to point out that the reverse may also be true. A later donation of time, when one is at a higher professional level, can be worth more. A later donation of money, when either one’s capacity to donate the ability, or the organizations capacity to absorbe it productively, or the technological leverage, is/are greater, can lead to a greater good. In any case, there is uncertanty enough to make this at least neutral in my eyes.
Apart from these points, I think the OP makes both a reasonable presentation of the FIRE movement, and a good summary of the potential contentious points.
To clarify, when I mentioned that FIRE enthusiasts are “likely to take a more active approach to selecting their own investments” I didn’t mean to imply that they will be selecting actively manged funds. But, I agree that I could have worded this better.
Using the standard method of saving for retirement employed in the UK as an example (purely because it’s the one I’m most familiar with): most people here have what’s known as a defined contribution pension, whereby their employer pays a percentage of their salary into a pension in their name (and, in most cases, employers are legally obligated to do so). In practice, a “pension” is nothing more than a tax advantaged account which houses some form of investment fund.
Employers are the ones who select a pension provider for their employees and will generally rely on these “experts” to recommend a default investment fund for their employees’ retirement savings. Unsurprisingly, most pension providers recommend one of their own actively managed funds, which allows them to charge a fat ongoing management fee.
When I say that individuals pursuing FIRE generally “select their own investments” I’m referring to the fact that they usually choose funds themselves rather than sticking with the default option offered by their employer. As you say, they take steps to minimise the fees they are paying and generally opt for globally diversified, passive index tracker funds.
I think it’s fair to say that large parts of the investment industry are guilty of employing jargon and presenting their products in needlessly complex ways to discourage retail investors from attempting to understand how their money is invested and whether the fees they pay are reasonable.
While I’m of the belief that selecting an appropriate investment fund can be much simpler than most people assume, I will also concede that doing so does require a bit of specialist knowledge. For example, to select an appropriate passive fund, those in the FIRE community will need to consider factors such as equity/bond ratios, whether the S&P 500 is sufficient (or if they want more global diversification), if an “all world” index fund is appropriate (or whether they want small cap stocks included), etc.
If those pursuing FIRE wish to retire before they reach the age at which they are able to access the funds held within their pension, they will also need to hold sperate investments and so will generally need a strong awareness of any taxation which will be applicable to these. Only by taking tax into account will they be able to optimise and structure their investments appropriately (e.g. capital gains and dividends are taxed differently in many jurisdictions).
In saying all of this, I would like to amend the point I made about ESG funds generally having higher fees than non-ESG funds. While it is true that passive ESG funds generally have higher fees than other passive funds (and actively managed ESG funds ordinarily have higher fees than average actively managed funds) there are plenty of passive ESG funds with lower fees than standard actively managed funds.
As such, most employers (in the UK, at least) have an opportunity to save their employees significant amounts of money while also moving them to more ethical investments. Given that the board level employees responsible for selecting company pension schemes (presumably Chief Financial Officers?) are likely to have their own pensions invested in these funds, they have significant personal incentives to do so.
In terms of opportunity for EA activism, interventions to encourage employers to make such a switch could be highly impactful. Given the boards of large companies are likely to include individuals with knowledge of investments, chartered accounting qualifications and the like, they should be able to grasp the benefits of switching to cheaper, passive ESG funds easily. I can’t think of many other situations where a small number of people have the capacity to reallocate vast sums of other people’s money away from harmful industries.
Hi all. As one of the most prominente pro-FIRE (and pro-FIRE-then-EA ) voices on the Spanish-speaking EA Slack, I was pointed here in case I could add something useful. There’s really not much, since the OP clearly either is already on the FIRE community or has done his homework really well. However, I wanted to clarify a couple of points.
On “The FIRE/EA conflict” section, the OP presents the source of the funds donated as potentially problematic. I’d like to emphasize that this viewpoint, while being, as far as I know, nearly universal within EA spaces, would be seen much less as a given within FIRE spaces. The FIRE position, roughly summarized, would be “money is money”. That is, if you want to do good, and want to use money for that, you should be agnostic re: its origin. Drug money or church money, they buy the same number of mosquito nets. Or, if you prefer your Latin, “pecunia non olet”. Besides belaboring the point, this is mostly so you are aware of this difference in assumptions, if you’re trying to get a FIRE-enthusiast “into the fold”, or nudge her towards “ethical”, ESG or not, investments.
As for “are likely to take a more active approach to selecting their own investments that most people”, I would point that the mainstream position within FIRE is precisely the opposite, that is, that passive/indexed investing is preferrable, at least until well into the accumulation phase (in the vernacular, until you are already wealthy), and for most, even for the whole duration of the journey. Even the Oracle of Omaha has recommended it for his own widow-to-be on his will: “On my death, there’s a fund for my then-widow, and 90% will go into an S&P 500 index fund.”. While there is a subsector of FIRE who places very much emphasis on security selection and overperformance (being, on this, more a branch of usual finance than personal finance, and only different from most on their frugal habits), it is generally understood that most people do not have either the temperament or knowledge needed to pull this off reliably. And “reliability” is the name of the game. The idea is that many or most professionals, able to generate income steadily, should be able to eventually retire. While many, or most, people, should sensibly leave the management of their wealth to professionals, in the narrow sense of passive/indexed investing using mutual funds run by professional managers.
On “The Case for FIRE-EA”, the OP states that “stashing away a significant sum of money over the course of several decades, while there remains a great deal of avoidable suffering in the world, will feel instinctively wrong to many with an EA mindset”. However,
a) Not only the FIRE approach is perfectly compatible with the Giving What We Can pledge (since usual FIRE objective is upwards of 50% savings rate, thus can be safely lowered to 40% at the “mere” cost of 5 additional years to retirement − 21.6 years vs 16.6years, with some assumptions).
b) This approach is implicitly maximalist, in the sense that any personal consumption funges against the objective of donating. And since we know that most donors, even EA donors, aren’t maximalist being as frugal as they can be to donate, we should be agnostic about what is the destination of the surplus. I understand there is no moral case for saving being better than consuming. Plus, 10% is a good ticket to admission of being a good person, and a good Schelling point.
c) “The value of donating time or money now is or may be greater than doing so at a later date.”. I only want to point out that the reverse may also be true. A later donation of time, when one is at a higher professional level, can be worth more. A later donation of money, when either one’s capacity to donate the ability, or the organizations capacity to absorbe it productively, or the technological leverage, is/are greater, can lead to a greater good. In any case, there is uncertanty enough to make this at least neutral in my eyes.
Apart from these points, I think the OP makes both a reasonable presentation of the FIRE movement, and a good summary of the potential contentious points.
Thanks for the feedback!
To clarify, when I mentioned that FIRE enthusiasts are “likely to take a more active approach to selecting their own investments” I didn’t mean to imply that they will be selecting actively manged funds. But, I agree that I could have worded this better.
Using the standard method of saving for retirement employed in the UK as an example (purely because it’s the one I’m most familiar with): most people here have what’s known as a defined contribution pension, whereby their employer pays a percentage of their salary into a pension in their name (and, in most cases, employers are legally obligated to do so). In practice, a “pension” is nothing more than a tax advantaged account which houses some form of investment fund.
Employers are the ones who select a pension provider for their employees and will generally rely on these “experts” to recommend a default investment fund for their employees’ retirement savings. Unsurprisingly, most pension providers recommend one of their own actively managed funds, which allows them to charge a fat ongoing management fee.
When I say that individuals pursuing FIRE generally “select their own investments” I’m referring to the fact that they usually choose funds themselves rather than sticking with the default option offered by their employer. As you say, they take steps to minimise the fees they are paying and generally opt for globally diversified, passive index tracker funds.
I think it’s fair to say that large parts of the investment industry are guilty of employing jargon and presenting their products in needlessly complex ways to discourage retail investors from attempting to understand how their money is invested and whether the fees they pay are reasonable.
While I’m of the belief that selecting an appropriate investment fund can be much simpler than most people assume, I will also concede that doing so does require a bit of specialist knowledge. For example, to select an appropriate passive fund, those in the FIRE community will need to consider factors such as equity/bond ratios, whether the S&P 500 is sufficient (or if they want more global diversification), if an “all world” index fund is appropriate (or whether they want small cap stocks included), etc.
If those pursuing FIRE wish to retire before they reach the age at which they are able to access the funds held within their pension, they will also need to hold sperate investments and so will generally need a strong awareness of any taxation which will be applicable to these. Only by taking tax into account will they be able to optimise and structure their investments appropriately (e.g. capital gains and dividends are taxed differently in many jurisdictions).
In saying all of this, I would like to amend the point I made about ESG funds generally having higher fees than non-ESG funds. While it is true that passive ESG funds generally have higher fees than other passive funds (and actively managed ESG funds ordinarily have higher fees than average actively managed funds) there are plenty of passive ESG funds with lower fees than standard actively managed funds.
As such, most employers (in the UK, at least) have an opportunity to save their employees significant amounts of money while also moving them to more ethical investments. Given that the board level employees responsible for selecting company pension schemes (presumably Chief Financial Officers?) are likely to have their own pensions invested in these funds, they have significant personal incentives to do so.
In terms of opportunity for EA activism, interventions to encourage employers to make such a switch could be highly impactful. Given the boards of large companies are likely to include individuals with knowledge of investments, chartered accounting qualifications and the like, they should be able to grasp the benefits of switching to cheaper, passive ESG funds easily. I can’t think of many other situations where a small number of people have the capacity to reallocate vast sums of other people’s money away from harmful industries.