Business Insider Investors in the FIRE movement may not be aware of how exposed their retirement savings are to the tech and AI sector, market pros say.
FIRE investorsmay be making costly mistake: not regularly de-risking their portfolios.- Those looking to retire earlymay not be aware of how exposed their savings are to swings in hot trades like AI. - Market pros recommend taking profits in riskier areas of the market, like tech stocks, and diversifying.
Americans piling into stocks with dreams of retiring early may be making one big mistake: many aren't de-risking their portfolios after a historic run-up in the market, economists and wealth advisors warn.
It's a warning for the Financial Independence, Retire Early movement, a growing cohort of people who save and invest aggressively to be able to quit work if they choose. But many pursuing financial freedom may be underestimating the risk of a sharp correction and a slowdown in the coming years as valuations cool and market returns revert to the historical average, according to market pros speaking with Business Insider.
Data shows that Americans' retirement accounts in the last couple of decades have skewed more heavily toward equities. The average allocation to stocks in retirement accounts has climbed from 67% in 2005 to 78% in 2024, according to a report from Vanguard.
Investing pros generally recommend an aggressive allocation to stocks in the decades leading up to retirement, since equities move up and to the right over the long term, and younger people have time to recoup any losses stemming from market volatility.
But the market has increasingly become concentrated in tech and the AI trade. Technology stocks account for almost 40% of the total market cap of the S&P 500, more than three times any other industry in the index, and many retirement funds are heavily weighted toward tech investments.
| Fund | Performance since June 1 | Exposure to the information technology sector |
| Fidelity Freedom 2065 Fund (FFSFX) | -0.29% | 25.9% |
| Schwab Target 2065 Index Fund (SWYOX) | -0.67% | 28.5% |
| Vanguard Target Retirement 2065 Fund (VLXVX) | -1.25% | 30.7% |
Ted Oakley, a wealth advisor whose firm manages over $2 billion in assets and occasionally works with investors pursuing FIRE, said the top mistake among investors chasing financial independence is that many are investing heavily in risky assets and are reluctant to take profits due to the success of their portfolio in recent years.
"It may be FIRE without the E," Oakley said, referring to the possibility that many hoping to retire early will need to keep working as they rebuild their wealth after a market correction.
Stocks have started to wobble near their peaks as questions linger around valuations and the sustainability of AI capex. Oakley said the risk is that stocks tumble into what he calls a "generational" bear market, a double-digit decline that leads to a prolonged period of underperformance after a stretch of atypically large gains.
The FIRE movement has been around for years, but took off during the pandemic as markets posted a streak of 20%+ annual gains. If the S&P 500 holds on its gain so far this year, it would mark the fourth year in a row markets have delivered double-digit returns for investors.
'This has worked, so I'm going to keep on making it work so I get even more.' That, to us, is not investing," Oakley said.
David Rosenberg, a top economist and the founder of Rosenberg Research, said the surge of popularity the FIRE movement has seen since the pandemic is itself a symptom of the broader market bubble.
Chatter about FIRE first began in the years leading up to the internet bubble. "Your Money or Your Life*,"*** **the book often credited with giving birth to the FIRE movement, was published in 1992, less than a decade before the dot-com bull market would eventually collapse.
Rosenberg and Oakley have two pieces of advice for FIRE investors: Take profits in some risky assets — specifically, tech stocks — and diversify into other areas of the market.
"We try to do it such that they don't end up having to give it all back. Because that's the worst," Oakley said, adding that the best long-term investment opportunities at the moment are in commodities like energy, gold, and silver, which don't look as overvalued as stocks and could benefit if the US sees hotter inflation in the coming years.
Rosenberg said young people should still be investing in the S&P 500, but balancing their exposure with tech to more attractively valued areas of the market, like Asian and other international stocks.
"Remember it's the tortoise that won the race, not the hare," Rosenberg said.
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