FIRE is a Personal Finance phenomenon with a simple goal. Become Financially Independent and maybe even Retire Early... say, by age 35.
You might be more interested in the last step of the plan: How I Created a Forex, Crypto, Stocks and Options trading Bot that makes retirement possible at Age 35
But it takes a few more steps along the way before you can utilize a trading bot, or any other form of high-yield investment, to the point that can get you to FI/RE.
Right now, I'm just sharing my FI/RE plan. It might not work for you, and I'm not suggesting you should do what I'm doing as there is substantial risk involved. But during the COVID-19 global crisis, some extra time to think, research, plan, and develop a fast-track to FI/RE has brought me to this point. I've been having a lot of fun doing it, and so far the results are fantastic.
3 years from now, my goal is to write the follow-up to this post, entitled "How I FIRE'd the COVID-19 Crisis."
Until then, here we go:
5 Steps to Financial Freedom through a Recession
1. Don't wait. Start executing FI/RE strategy right now. Even in the midst of economic downturn, know there will inevitably be at least one financial crisis every 7-15 years moving forward. Prepare and be ready for the next one. What we do in this period of recession will put us in a position of strength for when the next recession comes (and it will).
Coming Soon: How the 2008 Financial Crisis set me up to FI/RE through the COVID-19 Crisis.
2. Prepare. Set the stage for multiple streams of income and multiple investment strategies between recessions. Getting yourself set up early enables you to be ready to jump on opportunities and quickly pivot from one strategy to another when the next recession comes (again, it most certainly will). Here are few things to get set up now:
No Credit Card Balances: If you hold a balance on a credit card, paying it down is absolutely the best investment you can make. Avoiding paying that 29% APR on your card balance by paying your entire statement balance each month is the same as a 29% ROI. This is a better yield than almost any other investment. Start by paying your highest interest rate cards down first, then tackle the next highest and so on until all Credit Card Balances are paid down.
Stock Trading Account: Even if you don't want to invest a lot yet, get an account and practice trading in small batches to prepare for buying in when the economy is distressed and stocks become available at record low prices. Robinhood offers commission-free trading, including Options trading, and the Robinhood Gold account ($5/month) allows borrowing from Robinhood on Margin at a low rate (5% APR) so you can grow your investments faster. One key tool in my FI/RE toolbox is Robinhood's API, which allowed me to make a trading bot for Stocks and Options. Read more about it in here.
Real Estate: Some of the best cash-on-cash returns can be generated by purchasing investment property during an economic downturn. Many of us are turning to the BRRRR Method for real estate investing (Buy, Rehab, Rent, Refinance, Repeat).
Peer-to-Peer Lending: Over 10 years, P2P Lending has provided me the most stable returns of all my investments, at just under 10% annually. There are a handful of P2P Lending platforms available - I happen to use Lending Club. Lending Club also has an API, so I also made a trading bot for my P2P Lending Account. Read more about it in my post next week.
3. Find Cash Anywhere You Can. Get as much low-interest credit lines, loans, and "free" cash as possible. In market down-turns, if you're prepared, you can turn low-interest cash into high-yield investments. Here are a few ways to get your hands on cash.
Apply for a personal loan: Online lenders like SoFi provide cash in a matter of days, at pretty reasonable rates. If you can pay 6% on your cash to pay for things allowable by the loan, you can invest your other cash reserves in something like Stock Options, which can earn far more than 6% per year.
Borrow from Peer-to-Peer Lending: P2P Lending is great for investors, but also a great way to get access to cash. Lending Club let's you crowd-source a loan for up to $40,000.
Borrow on Margin from Investment Accounts: One amazing feature of RobinHood Gold ($5/month) if the ability to borrow on margin at a very low interest rate to grow your investments. Margin accounts also act as collateral for Options trading, specifically "Selling Puts" where you can earn regular cash flow without actually borrowing any money.
Refinance your home: If you've got enough equity in your home (more than 20% of your mortgage is paid off), it may be a good time to refinance your home at a lower interest rate, and take out cash against the refinance for up to the amount allowable by the bank. This is one lowest-interest methods of getting cash.
0% Intro APR Credit Cards: There are a handful of credit cards that will give you 0% interest on purchases and balance transfers for 12 to 18 months, or even longer. Use these deals only if you have a plan to get the balance paid off in full before the intro 0% APR period ends, otherwise you'll pay huge interest rates once the Intro period ends.
(Not necessarily recommended, but a few more options to get cash quickly)
Borrow from your 401K: Most plans allow some limited borrowing "from yourself" out of your 401K account. You pay yourself back over time at a very low interest rate. The interest rate is not a big deal since the interest you're paying it to yourself. Most financial advisors don't recommend borrowing from your 401K, assuming the money is being used for a depreciating asset, not an appreciating investment.
Borrow from your family: I personally don't recommend this, in fact almost no one does. But the option is always available for those bold enough to ask and deal with the fall-out if things don't go well with repayment.
4. Put the Cash to Work in Crisis-Mode. Assuming you don't need all that cash and credit you just acquired to actually survive the financial crisis, put your cash to work in high-yield investments. That cash wasn't free - in most cases you're paying interest on it - so as a rule of thumb you must invest your cash in things that will earn far more in interest than your borrowing rate. Here's where your creativity kicks in, and at least for me is where FI/RE becomes possible.
Read More: How I Created a Forex, Crypto, Stocks and Options trading Bot that makes retirement possible at Age 35.
In summary here's how the bot works:
Gather Data: Get charts data of all stocks I follow. Right now the bot watches everything in the S&P 500, along with a few others I'm interested in.
Analysis: Run indicator analysis on every chart. For example, 50-day and 200-day moving averages, trend slopes, etc.
Train: Mark historical points on each chart where you would have bought or sold a stock to train the bot on your preferences and risk tolerance.
Alert: As the bot learns your patterns, it suggests buy/sell signals every day for all stocks in your watchlist.
Trade: If you dare, set the bot in AutoTrade mode to automatically buy and sell based on your training.
Here's where the magic happens, getting you to FI/RE fast. The bot doesn't stop at Stocks, but also suggests Options trades that will generate cash immediately, magnifying your returns on Stock investments even if the underlying stock loses value over time.
Here's how: The Magic of Selling Options Premiums
5. Be Consistent and Smart.
Play market volatility strategically. Constantly invest, constantly re-balance your portfolio, invest more in down days, and preserve more in up days. For Options, Sell Calls on up days and Sell Puts on down days.
Preserve what you've earned. The market corrects cyclically. It will never be clear when we've reached the top until after the correction has already occurred. But at the point when you feel we've reached the absolute top and things are as good as they'll get, consider moving stocks and mutual fund holdings into income and preservation funds slowly (1% to 2% per day) on each up day. The opposite strategy in the early days of recession is moving back into stocks slowly on down days.
Non-Official Step 6 of Steps to Financial Freedom through a Recession
(6*). While not one of the 5 steps, continuing education certainly helps. I personally found getting an MBA from Quantic School of Business and Technology worth every penny, as it sharpened business skills I already knew, taught me new ones, and I found myself in an emerging global community of other very motivated like-minded thinkers.
Some of the courses that especially drove my FI/RE results were Quantic's Data-Driven Decisions and Advanced Finance courses.
It's always good to keep learning in areas that interest you. For me, it has been Options Trading.
FIRE through Crisis
The bottom line is simple. A crisis offers a way to improve our financial positions, even when it seems counter-intuitive. A crisis offers a way for our cash to work for us in amazing ways even when we cannot work ourselves. Set yourself up for success before the next crisis hits. When it does, while the big institutions and fund managers are running away and selling off in the stock market, real estate market, and loan market, take advantage of the ability to buy (invest) more at very low prices, then cash flow them!
Hope to update you in 3 years, all FIRE'd up. Until then, stay safe, wash your hands, don't touch your face, and practice good social distancing. :)