Summary: I hope to summarise the similarities which exist between the Financial Independence, Retire Early (FIRE) and Effective Altruism (EA) movements, explore areas where these two movements conflict with one another, and propose approaches which can be adopted by EA organisations to prevent the growth in awareness of FIRE concepts from hampering the growth of, or even diminishing, the number of individuals actively engaging with EA principles.
What is FIRE?
Financial Independence, Retire Early (FIRE) is a fairly self-explanatory concept which has risen in prominence over the last few decades. Essentially, individuals pursuing FIRE aim to accrue a level of wealth which will be sufficient to fund all of their living costs, in perpetuity, thereby eliminating the need to enter paid employment or otherwise be financially dependent on others to maintain their lifestyle. To achieve this state of financial independence, the movement encourages maximising your income while minimising your expenditure with a goal of obtaining as high a “savings rate” as possible (i.e. maximising the percentage of your take home pay which is directed towards savings and investments).
To this end, those seeking FIRE typically engage in a combination of the following:
- Maximising their income by pursuing very highly paid careers, seeking rapid promotion within their workplace, volunteering for paid overtime, working second jobs, monetising hobbies, etc.
- Pursuing minimalist lifestyles. For example, by foregoing takeaway food and restaurant meals, cancelling and/or avoiding subscription services, avoiding branded goods in favour of cheaper alternatives, choosing to walk rather than take public transport, taking public transport instead of purchasing a car of their own, etc.
- Investing very high proportions of their savings with the goal of maximising capital growth. Then, on achieving financial independence, utilising these investments to provide a source of passive income on an ongoing basis.
While the volatility of the investments chosen should be tailored to the individual’s own risk tolerance, it is generally accepted in within the FIRE community that simply amassing a large quantity of cash, then drawing down from this on an ongoing basis, represents an impractical route towards financial independence for most people. Instead, it is recommended that any income earned should be invested in assets which are expected to outpace the rate of inflation and give a reliably high growth rate. Typically, FIRE communities encourage the use of equity investment funds.
It's worth noting that not everyone who seeks financial independence does so with the intention of pursuing early retirement. Instead, many proponents of financial independence choose switch to part time working, pursue new careers, or devote their time to charity. Various websites, forums, and books have now been written on the subject of FIRE and so it’s likely that the number of people pursuing financial independence will continue to grow.
FIRE vs. EA: Opportunity Cost
A sound appreciation of the concept of opportunity cost underpins both the FIRE and EA philosophies. At its most basic, this concept posits the truism that time spent performing one activity (or money spent purchasing a particular good or service) is no longer available to be spent performing a different activity (or to purchase another good or service). For example, by choosing to ride a bus to a market you reduce the amount of money you are able spend when you arrive by the value of the bus ticket. Equally, if you choose to walk, this will take significantly more time out of your day, which could be spent performing another activity instead.
While the concept is intuitive, and even downright obvious, it’s also clear that most people show little conscious awareness of it when conducting their day-to-day lives. Most of us are not stony-eyed rationalists who base our spending and career decisions on the results of a detailed cost-benefit analysis. Instead, we often make these decisions based on emotion, impulse, and gut feeling. We can easily fall onto a kind of hedonic treadmill, whereby we automatically increase our spending as our incomes rise. In fact, this tendency is actively encouraged by persistent marketing campaigns, as well as social pressures, such as the tendency to want to “keep up with the Joneses”.
This observation highlights the main similarity between EA and FIRE, which is that both philosophies encourage us to defy social pressure to engage in conspicuous consumption for its own sake, while also encouraging us to give considerably more thought as to how we allocate our time and resources.
The importance of opportunity cost, as it relates to EA, is perhaps best conveyed by Peter Singer’s 1972 essay “Famine, Affluence and Morality”, which has acted as an entry point into the EA movement for many. Within the essay, Singer constructs a thought experiment whereby a man, dressed in his best suit and wearing a pair of new shoes, encounters child drowning in a pond. He, and he alone, can save the child by wading into the pond and bringing them to safety. However, by doing so, both his suit and the shoes would be completely ruined.
Clearly, no moral person would choose to allow the child to die purely to avoid damaging their clothing. The cost of replacing a suit is inconsequential in this situation and should have no impact on the decision of whether to intervene.
The crux of Singer’s argument is that the proximity between those in need and those capable of saving their lives (or alleviating their suffering) should also be treated as irrelevant.
Countless lives are lost each year due to the absence of fairly inexpensive interventions (e.g. childhood vaccination programmes, bed nets to protect against malaria infection, etc.). Given that it’s relatively easy to direct time and resources toward facilitating these interventions, it seems reasonable to make the case that each of us has some moral obligation to do so.
By contrast, the FIRE movement is not prescriptive about what individuals should spend their money on. Instead, it emphasises that while the old adage that “time is money” holds true, it’s also reasonable to say that “money is time”. More specifically, that money invested in the here and now can be thought of as being used to purchase additional leisure time and freedom from obligations to work in the future.
FIRE as EA Adjacent
While the underlying philosophy of FIRE does partly conflict with that of EA, I don’t believe they should be seen as inherently opposed to one another. Yes, it’s easy to imagine that the most fanatical devotees of each philosophy would hold one another’s lifestyle choices in some distain. I doubt an EA who works 60+ hour weeks in a high paying job, lives in a one bedroom apartment, and sustains themself with little more than rice and beans (all in order to maximise the cashflow they are directing at effective charities), would feel they have a lot in common with someone who routinely squirrels away most of paycheque into a pension, purely because they have similarly frugal lifestyles.
But clearly most people who subscribe to either philosophy don’t live such monastic lifestyles. While there may be some individuals whose lives do resemble those of the caricatures I’ve outlined, most people who associate with either movement are far less extreme.
There’s no reason why a healthy balance can’t be struck between being more altruistic while at the same time taking a more diligent approach to improving your financial security.
I make this point largely because I feel there’s a danger that both communities could develop an “us and them” attitude, whereby proponents of each worldview become actively hostile towards those who are drawn to the “opposing” outlook. While the risk of this happening is difficult to quantify, the fact that both movements attract significant discussion in (often anonymous) online forums (as is the case for many financial, or niche philosophical subjects) suggests that such an “in group/out group” mentality could develop fairly quickly.
To prevent this from happening, I would encourage EA’s to view FIRE as an “EA-adjacent” concept and also seek to encourage them to become active in FIRE spaces.
The nature of FIRE is such that those drawn to it are likely to have an interest in finance and investing, a frugal disposition, as well as significant capacity for delayed gratification. I believe that EA’s who do not, by their nature, possess such traits could benefit from greater exposure to those who do. For example, personal finance forums unsurprisingly contain far more in-depth discussion relating to ways to reduce personal expenses, making your spending go further, and maximising growth on savings, than can be found on EA forums.
If nothing else, greater awareness of more niche methods of improving individual personal finances would be beneficial for the EA community. Examples of these include:
- Stoozing – whereby instead of making large purchases using cash (e.g. for cars, home renovations, etc), a credit card offering a large 0% interest period is used while the cash which was originally earmarked for the purchase is left in a high interest savings account for the duration of the 0% interest period.
- Methods of generating cashback and/or obtaining rewards for spending – e.g. by using “cashback” credit cards, cashback websites, discounted supermarket/fuel vouchers, etc.
- Matched betting – whereby a portion of free bets offered by bookmakers can be converted into withdrawable cash.
- Split-ticketing – whereby purchasing multiple separate tickets for a single train journey can often, bizarrely, work out cheaper than purchasing a single ticket.
- Debt/credit card churning – whereby accounts are opened with banks or other payment providers to obtain sign up rewards, introductory interest, and other short-term benefits offered by these businesses as loss-leaders to attract new customers.
By engaging with FIRE as well as generic personal finance focussed communities, EA’s should also be able to integrate themselves into these forums to promote EA concepts from within. For example, many such forums have Wikis or flowcharts to which new users are directed. These typically offer standard advice such as recommending that you pay down debts, build a “rainy day” fund, save for retirement, etc. However, they rarely encourage charitable giving. By working to include charitable giving as a practice which is routinely recommended within these environments there could well be scope for significant impact.
Again, we’re faced with an intervention whose impact is difficult to quantify. However, it’s difficult to imagine that including psychological nudges towards being charitable within personal finance guides, promoting discussion of EA within finance forums, discussing tax advantaged methods of giving, etc., will have no impact at all.
The FIRE/EA conflict
I think it’s unlikely that there’s a single, tailored argument for EA which is likely to be more persuasive to proponents of FIRE than any other demographic. And, given that there is plenty of extensive discussion relating to building a persuasive case for EA elsewhere on this forum, I won’t rehash that here.
Instead, I’d like to address methods through which I believe developing a closer association between EA and FIRE can be used to nudge those committed to FIRE and who have a strong awareness of EA, but are largely disinterested in it, towards having a more positive impact on the world.
Earlier in this summary I referenced Peter Singer’s Essay “Famine, Affluence, and Morality” and referred to how the thought experiment outlined within it has acted as a gateway into the EA movement for many people. One reason for this is because, at the time of writing, the top result on performing a search for “effective altruism” on YouTube brings up a video (with over half a million views) in which Singer outlines a modified version of this.
Within this video he also describes Warren Buffet (alongside Bill and Melinda Gates) as being one of “the most effective altruists in history”. For anyone unfamiliar with Buffet, he was at one point listed as the richest person on the planet and is widely regarded as one of, if not the, most successful investor alive – for which the press has dubbed him “the Oracle of Omaha” (after the state in which he resides, and in which his investment company, Berkshire Hathaway, is based).
While Buffet has donated vast sums to effective charities (and has promised to donate more than 99% of his total wealth) it is difficult to evaluate the net impact of his giving without also evaluating how that wealth was obtained.
A closer look at Berkshire Hathaway shows that over the years it has held stakes in a variety of businesses which have engaged in harmful as well as potentially unethical business practices. For example, Berkshire has held shares in cigarette manufacturers and has been a major, ongoing shareholder in Coca-Cola, which has repeatedly been ranked as the world’s largest source of plastic pollution. Another noteworthy constituent of its portfolio is McDonalds. At one point Berkshire held in excess of one billion dollars’ worth of McDonalds’ shares.
Given that Peter Singer is largely vegan as well as a prominent animal rights activist (his 1975 book “Animal Liberation” has been translated into several languages) it seems odd that he should praise someone who has grown their wealth through financing any businesses which is known to have facilitated a great deal of animal suffering.
It’s unclear whether Singer was aware of the source of much of Warren Buffet’s wealth before very publicly praising him for his charitable donations. And, while it could be argued that praising anyone who makes large donations to effective charitable initiatives is worthwhile (as doing so is likely to encourage others to follow suit) there is also a danger that such praise can obscure reasonable criticism of the methods employed to generate said wealth in the first place.
To this end, I suggest that there is a need for EAs to become more active in the investment space.
It’s not unusual for individuals to own investment funds (e.g. within their pensions) yet remain completely ignorant as to what assets those funds do, or are able to, invest in. While “ethical” investment funds do exist, these represent a very small, but growing proportion of funds on the market. It’s therefore not uncommon for members of the public to own (albeit by proxy) stakes in companies whose business models they find to be immoral.
Currently, most “ethical” investment funds are classified by the moniker “ESG” (Environmental, Social, Governance) and focus on screening out investment opportunities which violate a pre-determined set of ESG principles. While there is no universal agreement on what such ESG criteria out to be, examples of commonly excluded industries include: those which produce cigarettes, weapons, alcohol, pornography, etc.
As well as taking a more proactive approach towards ensuring investments they hold are in keeping with their own principles, there is potential for EAs to encourage other people to do the same.
Given that those pursuing FIRE will be directing an unusually high proportion of their income into investment vehicles and are likely to take a more active approach to selecting their own investments that most people, this group is a prime candidate for attempts to persuade a shift towards more ethical investment behaviour. Even if this turns out not to be the case and, in fact, they are more hostile towards the concept of ethical investing that your average person, the fact that they also have far more sizable investment portfolio’s than average means that even a small number of FIRE seekers making a switch to ESG investing could have a similar effect to a much larger group of non-FIRE seekers doing the same.
Two major criticisms of ESG funds are as follows:
- They often have higher management fees than non-ESG funds which invest in similar asset classes. Ostensibly the reason for this is that screening companies against ESG criteria is costly in and of itself. Proponents of ESG argue that these higher costs only exist because ESG is in its infancy and that they are therefore likely to fall over time. Of course, whether this actually happens remains to be seen.
- Arguably, ESG funds can be expected to offer lower rates of return than non-ESG funds. The reason being that most investment funds primarily evaluate their investment selections on expected return and risk, whereas ESG funds introduce additional factors which are unrelated to these criteria (i.e. there is the possibility that “unethical” businesses may be more profitable than those which fall under the ESG banner). Of course, many people dispute these claims and make the counter argument that companies which are ESG compatible are likely to have happier, more motivated staff, more sustainable supply chains, and the like). I make no assertion one way or the other here, other that to highlight that this can be a contentious point.
As a counter to the above, it could be argued that making a switch from a standard investment portfolio to an ESG investment portfolio could be construed as a form of altruism in and of itself.
While it seems odd to describe paying into an investment account belonging to yourself as a form of “altruism”, when we take into account the opportunity cost of paying into an ESG investment fund (which may have higher fees than a standard investment account and even offer a lower rate of return) it’s difficult to see think of a definition of altruism which would not apply to this behaviour.
The Case for FIRE-EA
Throughout this essay I’ve attempted to show that EA and FIRE need not be seen as being in hostile opposition to one another.
It’s entirely possible that on achieving FIRE many people will devote more of their time as well as any excess income they earn towards EA causes. However, it does occur to me that many EAs will still object to those pursuing this strategy.
The thought of someone 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. The actions of this individual won’t become more palatable simply because they express an intention to be altruistic at some point in the distant future.
While this objection could be downplayed as an example of “letting perfect be the enemy of good”, I think it’s a reasonable criticism and one which is worth exploring further. If we label the approach of focussing exclusively on amassing wealth to achieve financial independence, with the aim of being altruistic only after you have done so, as “FIRE-EA”, then the principal objections to it can be listed as follows:
- During the phase where you are accumulating wealth you are overvaluing your own wellbeing and undervaluing the wellbeing of others. You are allowing unnecessary suffering and death to occur.
- The value of donating time or money now is or may be greater than doing so at a later date.
- There is the possibility that you will fail to be altruistic in the future despite the plans you have made to do so. It’s possible that your values will change or you will be incapable of being altruistic in the future.
I would be interested to further discussion relating to this subject within EA spaces. It may be possible to argue that someone pursuing FIRE-EA could take countermeasures which render these criticism invalid. For example, they could write a will which explicitly earmarks funds for EA causes in the event that they should die prematurely, make small regular charitable donations while accumulating wealth to help prevent “values drift” which sees them become disinterested in altruism as they age, etc. However, I don’t believe that any of these approaches fully counters the criticisms levied against FIRE-EA.
I will close by noting that there is also a danger that some EA groups may also fall into the trap of endorsing FIRE-EA approaches inadvertently. For example, in 2021, EA associated charity assessment organisation GiveWell announced that it would be delaying the allocation of over one hundred million US Dollars which were earmarked for charitable causes. It citied the reason for doing so as a belief that it expected it would be able to find higher impact interventions to fund at a later date. It’s difficult to see how this can be interpreted as anything other than an explicit endorsement of the “save and grow your money now, give later” approach.
I will be grateful for any feedback offered and am happy to be contacted directly should anyone wish to further discuss any of the issues covered in this text.
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.