Being financially free at the age of 31 or 32? Kristy Shen and Bryce Leung did it with a well thought out investment practice. A look at the assets of the FIRE disciples shows how their portfolio is made up.

Finally quit, never have to work again and only do what you feel like doing because you are financially secure – for many such fantasies are pure mind games. But for Kristy Shen and Bryce Leung, that’s the lived reality. In 2012, at the age of 31 and 32 respectively, the two Canadians quit their well-paid “9-to-5 jobs”. They have been living their dream of early “retirement” ever since. FOCUS online met Shen and Leung for an interview.

FOCUS online: You went into early retirement at the age of 31 and 33. For middle-class workers, their life path sounds like a fantastic dream. Did you work towards this as children?

Kristy Shen: No. For a long time we wanted to take a straightforward and traditional path in life. It looked like this: you graduate from university, find a job, eventually you buy a house, work until you are 65 and then retire. But after the first few years on the job, we eventually realized that this plan wasn’t working out for us.

Why not?

Shen: There were actually two reasons why we questioned our life plan. First of all, we are both computer engineers and we chose this job because we thought that it would give you a secure and very good income for the rest of your life. But at some point, at least my employer started to outsource my job to other countries because there were cheaper workers there. All of a sudden I realized that I’m interchangeable – even though I have a good education. This shattered our illusion that we would always have a secure job until we were 65.

Bryce Leung: Exactly. And then, in 2012, we also began to question our savings goal. We actually wanted to buy a house in Toronto. But we found that real estate prices rose faster than our savings could accumulate. Currently, the average home price in Toronto is more than $1,000,000. Although we had a good salary as engineers, it is still very difficult to be able to afford a house there. Our dream of owning a home was shattered.

Shen: We kind of had an awakening and we were like, “You know what? Maybe the path our parents have been charting for us with their beliefs over the years no longer makes sense.” And then we found out about bloggers Mr. Money Mustache and J.L. Collins became aware of the FIRE movement. That changed our life.

What is the FIRE movement?

Leung: FIRE is an acronym for Financial Independence, Retire Early. People who live according to the FIRE philosophy of life save intensively in order to accumulate a lot of money with investments. At a certain point, they live off their passive income alone, i.e. the returns from their investments.

That means you had to invest your money in the stock market. Have you had any experience with this?

Shen: Yes, but up to that point in 2012, we weren’t really successful. In 2007, when we were fully working for the first year, we started investing our money in the stock market. Then the financial crisis followed in 2008 and our portfolio only knew one direction at the time: down. After our portfolio recovered in 2009, we liquidated it to set aside money for a down payment on a home. In hindsight, that was a big mistake because it meant we missed the bull market of 2009-2012. We only went public back in 2012 when we became aware of the FIRE movement.

What did your investment strategy look like from then on?

Shen: We had about 500,000 Canadian dollars in savings at the time. We then divided this money between five ETFs, i.e. index funds. We have made sure that we are building a globally diversified portfolio. So we didn’t just invest our money in one country. This has the advantage that our portfolio is not immediately thrown off balance by a single geopolitical event.

Leung: After some calculations, we realized at the time that we had already saved up a large part of what we would need for early retirement. With this investment strategy, we will soon be financially independent.

How did you calculate how much money you need to save in total?

Leung: We calculated with the so-called 4 percent rule. It is the foundation of the FIRE movement. This rule states that a retiree can use 4 percent of their life savings each year without experiencing long-term financial difficulties. This is made possible by a steady inflow of interest and dividends, which can largely cover the annual withdrawal of money. The saved portfolio does not expire, even though money is withdrawn.

In order to find out how much money we need in our portfolio in order to have provisions for the rest of our life or at least for the next 30 years, we first calculated our annual expenses. In a second step, we then multiplied this sum by 25, as required by the 4 percent rule. With annual spending of around 40,000 Canadian dollars, we came up with a total of 1 million Canadian dollars.

Currently, the inflation rates in Europe, but also in the USA and Canada are comparatively high. How does this affect the 4 percent rule?

Leung: The 4 percent rule goes back to the 1998 Trinity Study. This has also taken inflation into account by regularly adjusting the withdrawal rate upwards for inflation. As a result, purchasing power remains constant over time. The study assumes that inflation, which affects purchasing power, is also the same that drives nominal returns. In addition, the 4 percent is calculated quite conservatively. The average annual returns of the indices are usually significantly higher.

Shen: This is also reflected in our portfolio: When we quit our jobs, we had saved 1,000,000 Canadian dollars. Now, seven years later, our stock portfolio is valued at CA$1.7 million. But the money is currently multiplying faster than we can spend it.

How have you been living since you achieved the dream of financial freedom?

Shen: We just hop from country to country and live the life of digital nomads. When we quit our jobs in 2012, our lifestyle was still unusual. But now, after the pandemic, the idea of ​​remote work and digital nomadism is much more widespread.

But isn’t your everyday life also becoming significantly more expensive?

Leung: A big benefit of our lifestyle is that we can use our travel to basically bypass inflation. Because we don’t need to live in a specific place, we can go where the cost of living is cheap.

Nevertheless, Corona, war, the energy crisis and inflation have turned the stock market upside down. In your book “Quit Like a Millionaire”, which was also published in German in August, three years after it was first published, you list exactly what your investment activity looks like, how your portfolio is weighted and in which funds you have invested. How has your portfolio changed since the book was published?

Shen : The majority of our investments are still in a globally diversified portfolio. However, since inflation has picked up worldwide in recent months, we have changed this portfolio in that we are increasingly focusing on high-dividend funds and equities. The upside is that dividend stocks reduce overall volatility and provide a cushion to absorb price declines.

On Kristy Shen and Bryce Leung’s journey to financial freedom.

In order to live the dream of financial freedom, you have to do one thing above all: be able to put a lot of money aside. Is the dream of financial freedom only possible for high earners?

Shen : Absolutely not. It is very important for me to emphasize that. I myself come from a very poor background. I was born in China and lived with my family on $0.44 a day. However, you need perseverance and a strategy. The most important thing is the right attitude towards saving. The potential difference between income and expenditure should be as large as possible. For example, there is a young woman in our community who made it from homelessness to $100,000 in one year. Of course it was extremely tough, she took three jobs and saved every penny she could. And yet such examples show me that financial freedom is not just for high earners.