Has the FIRE Formula Changed? Why 100% Index Funds Isn’t the Answer

BiggerPockets Money Podcast

BiggerPockets

Investing, Education, Business

4.6 • 2.9K Ratings

🗓️ 14 February 2025

⏱️ 38 minutes

🔗️ Recording | iTunes | RSS

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Summary

Is a 100% index fund portfolio no longer the FIRE formula? The market has changed, and maybe your portfolio allocation needs to change with it. With index funds at all-time-high prices and price-to-earnings ratios at an eye-watering 29, you might be feeling a bit worried about whether your FIRE will last or you’ll even make it to FIRE in the first place. You’re not crazy; Scott is feeling the same way, too. Recently, Scott decided to make a move much of the FIRE community would protest—he sold 40% of his index fund portfolio to reallocate to real estate. Why did he do it now, even as a strong index fund believer? On the other hand, why is Mindy sticking with her stock and index fund portfolio, ready to ride out whatever potential market downturn could be coming our way? Scott explains, in detail, why real estate is a better choice for him at the moment, the reason prudent FIRE chasers should question the conventional wisdom of a 100% index fund portfolio, and why his new rental property could act as a hedge against a significant market downturn. If Scott is selling his index funds, should you? In This Episode We Cover The historical price-to-earnings ratios making index funds a riskier bet How holding 100% index funds could throw your FIRE off by a decade The optimal portfolio for retiring early on the four percent rule Is real estate a safer bet than stocks in 2025? Real estate cash flow vs. selling stocks for income and why one is much easier to actualize And So Much More! Links from the Show Mindy on BiggerPockets Scott on BiggerPockets Listen to All Your Favorite BiggerPockets Podcasts in One Place Join BiggerPockets for FREE Email Mindy: [email protected] Email Scott: [email protected] BiggerPockets Money Facebook Group Follow BiggerPockets Money on Instagram “Like” BiggerPockets Money on Facebook BiggerPockets Money YouTube Channel Personal Finance Club Get Early Access to Real Estate’s Biggest Event of the Year, BPCON2025 Get to FIRE Faster with “Set for Life” Find an Investor-Friendly Agent in Your Area BiggerPockets Money 599 - The Macro Analysis is Clear: Why We Are Reallocating (Away From Stocks) to Real Estate in 2025 Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/money-607 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected] Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Everyone in the fire community talks about throwing many index fund like it's the holy grail of investing.
0:06.4	Today, we're going to challenge that conventional wisdom. And who better to talk about this than somebody who actually went against the grain?
0:14.7	Scott literally looked at his index portfolio and said, maybe this isn't the optimal strategy for me anymore.
0:23.2	Hello, hello, hello. And welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen.
0:27.5	And with me as always is my VTSAX fan co-host, Scott Trench.
0:32.4	Thanks, Mindy. Great to be here and ready to chill with you. What an inside fire joke there.
0:39.0	VT Saxon chill. All right,
0:42.1	bigger pockets is a goal of creating one million millionaires. You are in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for
0:45.6	everyone, no matter when or where you're starting or how deeply trapped in the middle class
0:50.2	trap with an index fund only portfolio you are. Oh, Scott, that was a little deep already.
0:55.9	Let's jump right into it.
0:57.9	I am on the opposite side of you with the VGSAX trap that you alluded to.
1:04.5	Starting off this year, you made a pivot in your portfolio.
1:08.3	What change are you making and why are you making this change?
1:11.7	I am looked up and after 10, 11 years in this fire journey, realized that, you know,
1:17.8	while I have some real estate, my financial portfolio outside of my house, for example,
1:23.7	was essentially 80% in index funds. I am not comfortable with an allocation like that
1:30.9	at this point in my life. I would be very, I would be very comfortable with that or 100%
1:34.0	concentration if I was just starting out in year one of accumulation for that for the long-term
1:39.1	value that index funds provide. But in what is, you know, a portfolio beyond that which I initially set out
1:46.1	to achieve at this point, I'm not going to have so much as a percentage of my wealth in
1:51.3	all stock market index funds, passively managed stock market index funds. So I sold 40% of my
	...

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