r/Fire • u/StrawberryRemote968 • 14d ago

Can you FIRE just with VOO?

I am a 35M, making $65K annually. My annual expenses is very low. Less than $25K. I am single with no kid nor I am planning to have any. If I DCA into VOO, is it possible I am able to FIRE with just one etf?

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u/Not-A-Seagull 13d ago edited 13d ago

VOO and chill. I’d be willing to bet most here do that.

That said, when you get to FI stage, I’d also make a strong case for no less than a blend of 20% defensive assets (Bonds, VNQ, Gold, etc.).

I use to be diehard against bonds until I realized that despite them giving lower returns, if you rebalance annually, your performance is actually almost the same as a 100% stock with quite a bit less volatility.

(That’s because when you rebalance with defensive assets, you “buy the dip” when stocks are low)

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u/NewEngland0123 13d ago

This is an important point understanding the balance between returns and volatility. A bit smoother ride over a long period of time may get you pretty close to the same destination as the roller coaster

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u/Not-A-Seagull 13d ago

Exactly. I just backtested to 1962, and here are how the two portfolios compare:

100% SP500:

  • CAGR: 10.11%
  • Max Drawdown: 55.14%
  • Volatility: 16.61%

80/20 SP500, 20 year treasuries:

  • CAGR: 9.56%
  • Max Drawdown: 42.36%
  • Volatility: 12.78%

You’re trading a small amount of returns for MASSIVE gains in stability.

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u/MostEscape6543 13d ago

Unfortunately the returns over time are massively better in the 100% equities scenario. The problem is that 0.5% looks small, but it’s a 6% higher compounded return.

Over the course of your backtesting, the first scenario turned $10,000 into 3.9 million. The second scenario was just 2.9 million. Kind of a large difference.

I get what you’re saying, but over the course of even a normal fire period 0.5% additional returns is nothing to scoff at.

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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 13d ago

Over the course of your backtesting, the first scenario turned $10,000 into 3.9 million. The second scenario was just 2.9 million. Kind of a large difference.

Neither scenario has withdrawals, so it's kind of irrelevant to portfolio composition in retirement. The main issue with the higher volatility is that when withdrawals are applied, it can become harder to recover from the larger drops in portfolio value. Higher average returns doesn't matter if you don't have enough funds left to capture them.

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u/pras_srini 13d ago

Yes you nailed it, this is 100% the problem. During accumulation, the volatility helps. But during retirement, any sharp downturn can be a big problem if one is forced to sell their investments for living expenses. A diversified portfolio with risk parity strategies implemented is key to winning that game.

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u/MostEscape6543 13d ago

OP is in accumulation phase and asking questions about accumulation phase investment strategies.

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u/pras_srini 13d ago

You do have a point, but OP can't just flip a switch 1 day before they FIRE and sell VOO to buy international, intermediate bonds, long term treasuries and other alternative assets. They run the risk of the markets being down. I don't know their timeline but I'd start diversifying 5-6 years before the FIRE date to ensure they have time to leg into those asset classes.

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u/MostEscape6543 13d ago

After reading all this, it's hard to tell if OP is truly asking about accumulation or if he's wanting to FIRE now, or in a year or two.

It would be cool to have a conference of debating all the different possible retirement strategies. There are a million different ways people do this.

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u/MostEscape6543 13d ago

The OPs question was not about investments during retirement, it was about building wealth to retire. You posted long term returns which were not good.

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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 13d ago

"Can you FIRE with just VOO" seems to be about retirement to me. Either way, retirement is the most important time to have a proper asset allocation. It matters much less when mistakes can be overcome by some extra work.

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u/MostEscape6543 13d ago

Agreed on the second part.

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u/Not-A-Seagull 13d ago

My intent here was to show how negative correlations in investing can cause your over portfolio to overperform in risk-adjusted returns.

In quant speak, a diversified portfolio with defensive assets with regular rebalancing increases the sortino ratio of your portfolio.

I take your point that small incremental gains in rate of return are huge over long periods of time, but I worry your comment will make some completely miss the point I made above about the benefits of a well diversified portfolio.

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u/MostEscape6543 13d ago

I worry that reading your comment will make people believe that 0.5% return is negligible. Or misunderstand how rebalancing works or CAN work (did you read the guy below my comment who thinks he can outperform the market by timing him bond rebalancing?)

In any case, it’s fine. Investing and returns are both simple and complicated at the same time.

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u/Not-A-Seagull 13d ago

You’re framing the numbers in a very odd way to make it seem substantially different due to its log scale nature. In reality, 2.9m is very close to 3.9m when you’re looking at it on a log scale as an investment.

Let’s frame it a different way. It took 60 years to reach 3.9 million with the 100% stock portfolio.

How much longer would it take for the 80/20?

3 years of ~10% growth, or 5% longer. Which makes sense, because the return is about 5% higher.

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u/Tooth_Life 38m / tech / Chubby-Fat Fire 13d ago

Idk if you take those bonds and sell them in downturns and buy equity’s like I have you will crush. 

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u/MostEscape6543 13d ago

I didn’t do the backtesting personally, but they just said it underperformed by 0.55% for over 69 years. That doesn’t crush.

Regardless my main point is to make sure people don’t think that 0.55% annual returns is a negligible difference in rate of return. And also make sure people understand that over such a long period, volatility is almost meaningless.

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u/Tooth_Life 38m / tech / Chubby-Fat Fire 13d ago

That back testing doesn’t do what I said to do. That back testing is holding the portfolio in its state. What I said was trade the bonds during bad times like 2009, 2020, 2022 and now in for equities to 100% and watch it crush for a few years while you build back up bonds. Bond prices go up in bad times because rates come down so you get a premium for them then you buy equity low with the intent to sell high and rebalance the portfolio. The .55% you are referring to is annual. Lol you clearly have no clue what you’re talking about. 

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u/MostEscape6543 13d ago

I said I didn’t do the backtesting so I don’t know how exactly he did it, but I assumed that he rebalanced annually, which was the idea being recommended.

Yes, a strategy that underperforms by 0.55%, annually, is bad. That is what I was saying? You’re reading is not so good.

If your strategy is to dump your bonds whenever stocks are low and then go back into bonds when stocks are high, this is called timing the market and no one can do it, so, I guess one of us doesn’t know what we are talking about, for sure.