How To Achieve Extreme FIRE (Financial Independence Retire Early)

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Introduction

Extreme FIRE takes Financial Independence Retire Early to outermost reaches of it’s possibilities. It combines the triad of extreme savings, extreme earnings, and extreme lifestyle to create a very unique way of life. Using the principles of Extreme FIRE I lived in my campervan full-time while building a high-growth startup, all the while travelling the world doing extreme sports.

Today, I’m going to discuss the three principles of Extreme FIRE and how you can use them to add adventure to your life, live happy and humbly, and retire early. I’m Shane, quant investor, lifestyle designer, and this is Aikido Finance.

A webinar I gave on Extreme FIRE a while ago

Background & My Approach

Extreme FIRE originates from a software development methodology called Extreme programming (XP). This form of development takes every part of the process to extremes. Launching extremely early, user testing extremely early, getting customer feedback extremely early.

Regular Financial Independence Retire Early focusses solely on Savings and conservative investments. Extreme FIRE has three components take to extremes: Savings, Earnings, and Lifestyle.

See, Last year I took a radical leap of faith. I quit my job as a software developer in a big tech firm, moved into my self-built campervan, donated most of what I owned, and built my startup Aikido Finance.

I did this for the freedom and for the adventure. For many people, the dream is no longer the white picket fence and the secure 9-to-5 job. In this age of abundance, the dream is freedom; to be able to travel and adventure, to focus on all the other wonderful aspects of life that the world has to offer that are not your office job.

I am using Extreme FIRE so that I can collide the digital world with the outdoor paradise. So that I can pursue my climbing, backcountry skiing, mountain running, cycling, and downhill skateboarding while also getting the brain stimulation that comes from building a business.

Principle 1: Extreme Earnings

In FIRE, there are 2 primary forms of earnings: Income and Investing. Needless to say, Extreme FIRE take income and investing forms outside the norms. Income is maximised by taking calculated risks / leaps of faith with your job / side hustles. Investing returns are maximised by using a quantitative approach.

Elite hedge funds like Renaissance have returned over 66% per year on average. They achieved this through quantitative investing; using computers to make investment decisions.

Income

Since I can remember, I have always been working on little side hustles. When I was a kid, I sold Youtube backgrounds which were made in Photoshop and produced gaming videos. When I got older I built mobile apps for things like backcountry skiing and quantitative investing. A couple years ago, I partnered with Udemy and produced The Van Conversion Course, a 50-part video series and the highest ranked campervan course on Google. Since then I have worked on a Digital Nomad CoLiving in Chamonix, and of course built my baby: Aikido Finance. Working for myself was the only way it would ever be.

Extreme Income is built through 2 forms:

1. Day Job

This is your “9-5 job”. If this is a poorly paid, non-remote job – leave it. If it is a well-paid, remote job – consider staying, though see if you can apply Parkinson’s law and Pareto’s Principle.

Quick tip #1: Pareto’s Principle (80/20 rule): 80% of results come from 20% of activity. Limit tasks to the important to shorten work time. Automate your job as much as possible.

Quick tip #2: Parkinson’s law: Work expands to the time that you allot it. Shorten work time to limit tasks to the important. Make use of your remote job – be effective with how you work!

However, working for a corporation can only get you so far along the road to Extreme FIRE; if you want to make the multi-million exit, startups are the way. I ditched my well-paid, beanbag millennial, developer job I had to build Aikido Finance. I have since raised cerca €1M, grown the team, and built an amazing product. We are not looking to be a small cornershop, we are looking to be a unicorn. Our BHAG (Big Hairy Audacious Goal) is to become the largest quantitative investing platform in the world.

2. Side Hustles

An effective side hustle can be an excellent complementary source of income. I have tried many, some worked, some didn’t. I learned a lot from every project I work on. A side hustle can easily turn into your full-time hustle if it is successful. Just remember that good things take time to materialize: 1-2 years of consistency. Always be quantitative and analytical, don’t kid yourself. Pivot or ditch a project quick if it isn’t working – fail fast, launch early, test. TheVanConversion.com could easily be my full-time gig if I wanted it to be, but it has taken a while to materialize.

Investing

Since the age of 17, I have done just about every form of investing imaginable: Forex trading, index investing, value investing, quant investing. Many years ago, after reading The Little Book of Common Sense Investing by John C. Bogle, I was close to throwing in the towel and investing in index funds for the rest of my life. I believed that stocks really did take a random walk, that there was no way to beat the market over the long-term. I mean, 90% of fund managers underperform the market, so it must be impossible right?

Well a few years ago I happened across the bible of investing: “What Works on Wall Street” by James O’Shaughnessy. O’Shaughnessy backtests individual investing metrics (such as Price to Earnings) all the way back to the 1920’s and shows how they correlate with returns. He shows conclusively that there is no random walk. By building an investment portfolio using a simple, systematic, rules-based approach, vast outperformance is within grasp.

a) For instance, choosing the 10% of stocks with the lowest Price-to-Earnings would have returned ~16% per year since 1965.

b) Choosing the 10% of stocks with the highest Return on Equity would have returned ~12% per year.

c) And choosing the 10% of stocks with the highest 6-month price momentum would have returned ~14% per year.

Indeed, $10k invested in this simple microcap momentum strategy in 1965, would have grown to $95M today, per historical backtests.
In order to reduce my retirement age and improve my quality of life, I wanted to increase my investment returns from the market average 8% up to 15% per year. At this return, if I was earning 50k per year and invested 60% of my income I could retire in 9 years. Here’s an article I wrote comparing retiring from a 5% return compared to a 15% return.

So I have gone full quant. It comes naturally to me. I invest based on evidence, not emotion. I put the power of data behind my investing. I use computers to help improve my investing returns. If you want to know more about the power of quantitative investing and what it’s really capable of, check out this article.

Principle 2: Extreme Savings

Extreme savings are produced through 2 processes: Extreme minimalism and automation.

1. Extreme Minimalism

Minimalism is intentionally living with only the things you need and massively reducing spending. It is as much an external, physical process as it is an internal, mental cleansing.

The film Free Solo was released in 2018. In the documentary, professional rock climber Alex Honnold attempts to conquer the first free solo climb of famed El Capitan’s 900-meter vertical rock face at Yosemite National Park. Aside from the incredible climb, the film showcases Alex’s minimalist lifestyle. Despite his relative success, he has lived in a van for the past 8 years, eating out of pots to save on washing up. I became enticed by the humble minimalist life. So, I donated almost all the clothes and things I had and built a campervan that I moved into full-time.

So what are the benefits? No rent: 700 quid in my pocket. No eating out: 300 quid in my pocket. Mental benefits: priceless. Removing the excess baggage, removed the clutter from my brain, and helped brings me to a state of deep peace. Reduction and humbleness leads to nothing to but good things.

2. Organization & Automation

By adding rules and automation around your pay cheque, you will invest more, retire earlier, and be less likely to slip up along the way.

Budget

Put together a budget at the start of each month and track your expenses. Sorry to bore you, but do it. As Peter Drucker said in The Effective Executive “What gets measured gets managed”. You can only make improvements on those things that you track. Even a 5% improvement in your spending per month can make a huge difference to your retirement date; And if you’re going for Extreme FIRE, I bet you can do a lot better.

Automation

Setup a standing order between your bank and your online investment broker when you receive your pay cheque each month. This automatically transfers money each month, so you don’t have to think about it. The usual guidance for FIRE is to invest at least 20% of your pay cheque each month, if you are going for Extreme FIRE, you should try to invest over 50% of your pay cheque.

Principle 3: Extreme Lifestyle

I have The Jack of All Trades tattooed on my leg to remind me to do everything. I will not be putting my life on pause while I run my startup. At the same time, I will not be unemployed so that I can pursue my outdoor passions. I want to experience every facet of life, and everything the world has to offer.

Extreme FIRE is a tool and a lifestyle, not an end-game. Have fun along the way. Personally, I am training to become a mountain guide, which sees me taking people professionally into the alpine – doing multi-day ski-traverses, multi-pitch rock climbs, and high-alpine ice climbs. It’s a long-term goal, something I chip away at every year. Living in the campervan has given me the freedom to travel to whatever location I choose to pursue these passions. Later this year the plan is to explore Norway, and then head down to Chamonix, France for a while.

The Summit of the Black Tusk, BC

With an extreme lifestyle, you utilize remote working to the utmost, it’s the most amazing gift and has only truly been made possible in the last decade. Time appears to slow down when you are doing different, exciting things every day from different places. Conversely, if you are doing the same thing day-in-day-out, from the same location, time appears to speed up, and before you know it your youth will be gone.

An extreme lifestyle does not mean you have to do extreme sports – that is my mode of transport, but it could be anything. The aim is to do a variety of really interesting things that make life exciting. It could be painting, music, or writing, among a variety of other things. Get out there and become a Jack of All Trades. Try everything. Get nomadic.

Conclusion

If you want to try your hand at Extreme FIRE, you might be interested in Aikido Finance. Our mission is to democratize Wall Street, and give everyone access to quantitative investing. We make it super quick and easy to create a quantitative investment portfolio. Enter ‘purplecow’ at checkout for a 10% discount.

Until next time,

take it easy.

Shane

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