FIRE journey

FIRE Journey Part 1: The High Cost of Financial Fears

By Giovanni · August 30, 2024

Is your financial advisor costing you your FIRE dreams?

“Peace of mind.” That was the answer my friend gave me when I asked him why he pays 1% of his net worth to have his finances managed by a financial advisor. We calculated what having a financial advisor costs, and it ended up being more than he imagined … $40k/year! This was limiting his FIRE goal! Was that worth his peace of mind? His quick answer was NO!

We’ve all been there, a knot in our stomachs when thinking about our finances. Some of us have handed over the reins of our financial future to someone else, hoping for a magical solution. We’re not alone. Many people struggle with financial anxiety and the complexities of planning for the future, especially when it comes to achieving FIRE - Financial Independence, Retire Early.

In this three-part series, we’ll follow the real-life journey of my friend Xavier. He’s a successful professional who had ignored his finances due to fears we all face. We’ll see how he went from paying high fees for advice he didn’t fully understand to taking control of his own financial future and setting his sights on FIRE.

Along the way, we’ll explore the common fears that hold us back from achieving financial independence, the power of setting clear goals, and the simple yet effective strategies that can transform your relationship with money.

Whether you’re dreaming of early retirement or simply want to feel more confident and secure about your finances, Xavier’s story offers valuable lessons and inspiration. So buckle up and get ready for a journey from fear to FIRE!

Xavier’s Story: A Wake-Up Call

To keep his life private, let’s call him Xavier. Xavier is in his mid-forties, single. Professionally he’s navigated the Silicon Valley tech scene, non-profit sectors, Wall Street, and marketing. Through savings, successful startup ventures, and real estate investments, he’s amassed a net worth of around $1.35M.

Xavier and I have been friends for years. Recently, we reconnected after a long gap, and he asked me to review his finances. He believes I have some financial knowledge (which may or may not be true!). I enjoy reading financial blogs like Financial Samurai, Millennial Revolution, 1500 Days of Freedom, etc., and have explored some personal finance books… but I’m no expert.

He trusted me with his hard-earned money, and we embarked on a journey to understand his financial situation.

1%? That’s it?

How much was he actually paying the financial advisor? We first needed to understand the advisor’s role (Xavier wasn’t entirely clear on this). We logged into his brokerage account and the discovery of a daily “Financial Advisor Fee” of $22 shocked us. They calculate this based on your account balance, resulting in $8,000/year in fees alone. Next, we examined his investments.

I was surprised to find that half of his money had been sitting in a 4% treasury bond for the past year since hiring the advisor. The other half was in SSO, a leveraged ETF. Xavier had no idea why his money was allocated this way.

We compared his returns for the last 12 months with a low-cost total market index fund, VTI. His were lower. To be clear, I’m not recommending any specific fund. VTI is what I personally invest in, and I suggest looking into low-cost index funds. Past results don’t predict future results.

And that’s not all. Fees compound too. A 1% fee taken from a growing balance adds up over the years, as the illustration below shows. It’s an illustration, not a prediction.

The High Cost of Complacency: Limiting FIRE

Xavier’s story serves as a stark reminder of the high cost of complacency when it comes to your financial future, especially if you’re aiming for FIRE. It’s easy to assume someone else is handling your money, especially when they offer “peace of mind.” But as we saw with Xavier, that peace of mind can come with a hefty price tag - both in direct fees and missed growth opportunities.

By taking control and educating himself, Xavier can keep more of what he earns working for him, which is a big part of any path to FIRE.

Read Part 2: Financial Fears. We explore how Xavier faced his fears and set clear goals on his FIRE journey.

Educational purposes only. Not financial advice.