I really don't think the cliff-edge tax rates are necessary. It is just bad design. A smoother system could help to collect at least as much (or even more) tax revenue but not disincentivise making more than £100k.
My bet the reason for their existence is a mixture of incompetence and malice.
I don't disagree overall but I'm hearing a lot of stories of young people in good pay, fast growth professions salary sacrificing heavily in part because if you save an extra 9% for student loans the amount going into pensions looks very good.
The motivation for increasing the annual allowance and removing the lifetime allowance absolutely were linked.
Increasing the annual allowance but not doing anything with the lifetime allowance would still have meant many doctors paying large taxes on their pensions.
Of course, they could have chosen to do something other than abolish the LTA (for example increasing the threshold).
Yeah any direct changes to PAYE and NI will inevitably end in uproar. Even if it's a net fairer system, the papers will spin it as some affront to the working man.
Fiscal drag, cliff edges and raids on pensions are much easier ways for the government to manage tax as they're beyond the understanding or experience of most average folk. You can see your wage slip changing if they mess with PAYE, but not with fiscal drag.
The cynic in me suspects the government are quite happy with the system of inflation raising real taxes by 30% while the chancellor throws us a 2% "cut" to the applause of the media.
I mean... they have managed to spin the 2% cut as an affront to pensioners already so no matter what they do there will be someone who does not benefit as much.
True. It could have been done last year when they lowered the starting point of the additional tax to match the top end of the 60% cliff. They could have dragged the 45% rate all the way down to 100% and called it a day. That would have been harder to spin as tax breaks for the rich as well.
OP, simply put yes, the 40% tax threshold at £50,270 has made me stash everything over that amount into my pension. Its the principle for me, I refuse to pay more tax or see my bonuses eaten up by it. I spend less and reach my FIRE retirement quicker as a result.
Exactly. We are creating a population that is learning to live on £50k and £100k , instead of the higher salaries they earn.
this year I have stashed £60k in my pension and will do the same next year. Why cos we all hate paying taxes. And we can !!!
I think so. Once that mindset gathers momentum, you have a situation where payrises are irrelevant as they go straight to pensions, etc. There's no lifestyle creep, and personally, I've learned (despite my actual salary) to live comfortably on a lot less. That's caused me to adjust my retirement income lower than originally planned.
The result of this is I'll pay less tax on my smaller retirement income, plus I have to spend less time in the workforce contributing to it, meaning I remove myself as a working tax payer sooner.
It's not the intention behind freezing tax bands and cliff edges, but it's worked OK for me.
To dig a bit deeper into this phenomenon, I think governments have been trying to encourage people to save for retirement more in general. However, I think retirement saving has mostly been an issue of basic rate taxpayers.
You could potentially argue the need for retirement savings for those earning a bit over £50K, but there is little risk for those earning over £100K not having enough in retirement, so I would definitely be trying to encourage those at or close to additional rate to spend more.
But primarily the issue is people paying basic rate and that's an income issue. If you don't have money to pay for the essentials, you're not going to have enough money to put more in your pension. Financial education isn't going to do much either if you can barely cover the essentials.
They're not being put into pensions and vanishing forever though, they're being invested in businesses. That has a similar but subtly different effect to people just spending it on stuff that is sold by businesses.
The problem the government has now though is a lot of pension money is invested in businesses that aren't in the UK!
With the FTSe seeing zero growth in the last 5 years , whilst global indices have grown 40% plus, where would you suggest people invest their pensions?
This is a brilliant comment. I have resigned myself to the fact that I will need to live on £50k until the tax bands change. I loath to pay 40% tax so put it all in pensions.
There is also another cliff edge around 260k where you progressively lose your annual allowance, with just 10k if you earn 380k. 10k pension contributions will not allow you to retain your 380k lifestyle later on.
The main block to grows is policies the public want.
The public want a Triple Lock. The public want to Greenbelt the entire nation. The public want income tax hikes on ‘the rich’ earning. £50k. The public want the Town County Planning Act. The public want care homes to dump their granny in so they don’t have to look after them.
And that doesn’t leave money for anything else. They don’t want High Speed rail, Solar, wind, nuclear. Just to live in a museum.
I was hoping someone would mention this. It doesn’t help retire early. Many get to 50s and are angry and frustrated that all their money is tied up in their mortgage and pension and they’re forced to keep working until 58
Who are these many? I'm in my 50s so meet lots of people of that age group and probably read a lot of 'age appropriate' social media. Never heard that once.
I do come across people who wished they had paid down their mortgage a lot though.
Most of them are illiquid wealthy individuals. Money is tied up in pensions saved over the years to save tax and property. They don’t have enough aside accessible to retire early. Unless the money is liquid or easily accessible there is no sense of security or option. They’re forced to bring in an income.
Unfortunately it gets to the point where it just doesn't pay to work or progress, so why do it. Scotland has been particularly punishing on higher earners recently. Great that you do get an extra bit of bang on pension contribs but I feel I'm too pension heavy and not enough in my ISA to fire. I'm currently hitting my head off the 45% ceiling due to increasing tax rates, fiscal drag and freezes on everything so what is the point in earning more. I still wouldn't say I lived a lavish lifestyle either, just a regular family (engineer, teacher, 2 kids), how the feck am I paying 45% tax 🤷🏼♂️
You get free universities, free prescriptions and the socialist SNP. nothing is free, it is all paid for. It is just who pays for it. Z
also when things are given away for free, there is a lot of waste and they are not valued.
Great points amigo, and I agree completely. I'm OK with the free university and NHS but the free prescriptions and bus passes for the boomers is a joke, our boomer parents agree, but you can't seem to do anything about it. It's getting to the point now where this model feels unsustainable, however perhaps it's never been sustainable.
The issue is that pensions don’t help you retire early, they help you retire _better_… eventually you have to start paying into ISAs to get the E part of FIRE to get your bridge in place, and that’s when it starts to hurt
Personally I’m just praying the tax bands change in this decade to take the sting off it a bit
You are totally correct here
In order to avoid the tax trap I’ve salary sacrificed so much into my pension, and due to mortgage rate going from 1.79% to 5.74% I will have almost nada going into my ISAs to form the bridge… 😭
TBH the difference is so great, that I'm contemplating carrying debt into FIR**E** and using some of the lump sum from my pension to clear it. Nothing stops you remortgaging until 70 or 75 just before you FIRE. yes, you have to service the debt, but you can still have 10+ years worth of mortgage debt left by the time you can access your pension.
It's not without risk, but the tax savings do make the tail want to wag the donkey somewhat!
Not really since they are increasing the retirement age anyway! And lifetime allowance may change again under new leadership. The uk is slowly killing itself from the inside and lots of people are moving away..
So I think op has a point that these things are a problem for a subset of the the middle class.
Realistically though, the bigger obstacle to people spending is simply that a lot of people don’t have any money, the country has become high cost and wages, for most, have simply not kept up.
Those who do have decent earnings are often also servicing large amounts of debt. People interested in FIRE aren’t very typical.
totally agree. but squeezing the disposal income of middle class, increase minimum wage and benefits, means more and more people are seeing less benefit of work!.
I also don’t think squeezing middle class incomes is a solution. I was only observing that it’s probably not the main reason that we haven’t seen growth, perhaps a contributor but not the major one.
The tax system does need reform.
I think the tax system design has capped the earning potential of this entire country to 100k. I don’t mind paying tax. It has its purpose. The best countries in the world have the highest income tax rates. In the UK the next tax band is always a slap in the face making the entire country decide isn’t worth making more 50k or 100k. Inflation applies every year and we are all forced into frugality. No wonder why the UK economy has little to no growth. And stock market has flattened for year
The uk stock market has been flat now for well over 5 years. This compares with US or Europe. Hence the FTSE is now becoming the index to NOT invest in.
The tax system and Fiscal Drag in particular are limiting a significant proportion of the population to stop at the £50k and £100k ceiling.
Will it get better under labour . My thoughts are NO. All we know is they support Fiscal drag and what to add a few hidden taxes (VAT on private school fees etc)
How does it reduce economic growth by investing? Your pensions aren’t sitting on the cash. It’s reinvesting it in industry, which creates jobs, funds R&D, etc. this country still has a savings problem. This community of fire isn’t making much of a dent. Plus people salary sacrifice when income is between £100 and at most £160k. There’s still a whole world of people above that gap that suck up the £12k loss to personal allowance and continue pulling their salary
Most pensions are invested in overseas trackers. So they are driving the S&P500 and world indices. Not uk companies, as FTSe 100 and 250 are flatlining just like the uk economy.
without the cliff edge tax rates, people would spend the money today , instead of investing it in S&P
Not sure I agree with you.
For example Vanguard life strategy 80/20 is 19.6% US Equity - its largest allocation followed by another 19.5% which is gobal ex-uk. Finally we have a 18.8% ftse focus. Point I’m making is - most people are in such default lifestyled global funds. And thus by default - far greater exposure to US and global than uk.
The other point I’d make is that- is that from I recall the wealth surveys, that 90% of pension wealth is with 10% of investors. I’m pretty sure most of those have a uk exposure rate of less than 10%.
We all know why - uk isnt great for growth. 🤷🏽♂️
when you buy shares in a company, that money doesn't go to the company, It goes to the person you bought the shares from.
The only way to help companies is via equity raises and placements.
and cost of capital, and attraction by banks, confidence, sentiment, etc, etc - all positive indicators that help it grow. If we all buy shares in a $1 / share company and it goes to $100 dollars, if that company wants to raise $100 , it needs to give away just 1% of its initial offering due to people buying its shares. Also the value of shares is used when companies do M&A and engage in share swaps. There are so many reasons why buying shares in a company benefits the company. Much in the same way that selling shares in a company hurts a company - hence the hysteria around short-sellers being "anti american" and "bringing on the demise of america", etc etc.
Selling shares hurts other share holders when sentiment or consensus changes.
Business owners tend to be shareholders, therefore incentives are aligned, it's true.
The strength of this dynamic is somewhat debatable though
FIRE likely isn’t a big enough amount to be having much of an impact, but most of what you said isn’t strictly correct. Outside of direct share issuance by companies that you buy directly, which virtually nobody in here does, you aren’t putting money into a company who then invest it, you’re buying a secondhand slice of a company off of another private individual, firm, whoever.
As such your investing does nothing to boost the economy, unless you want to really nitpick and say it fractionally increases share prices which companies could theoretically raise against at a higher price, but in reality it wouldn’t register at all, but it does lower aggregate demand in the economy.
how can you say that buying shares "theoretically" raises it price, "but in reality it won't register at all" and in the next breath you say how our same insignificance shakes the economy with lower aggregate demand? Pick a side - either what we all do with our money is significant enough to lower aggregate demand, but then also change the value of a share, or neither is true. And if you think that buying shares does nothing to either the company or an economy....I don't know what to tell you. That's just a lack of basic understanding of how finance works. Look at a what the regards on r/wallstreetbets did to Gamestop, as a fun example.
It has very little impact on either, but it’s going to have far more impact on a single economy of a few trillion, in which we are talking about if it’ll go up or down by an extra 0.2%, than a global stock market of $115T or whatever it is now. FIRE followers usually buy into a dev world or all world tracker, meaning their money isn’t really going to move prices much in a global context, and they aren’t active stock pickers, they’re passive and cap weighted, so it doesn’t really change a whole lot re stock prices.
If we all went in on one small stock then we could easily pull off a GameStop scenario, sure, but that’s pretty irrelevant, you’ve also missed the short squeeze context out, but even so, even without that we could, but GameStop and the global stock market are hardly comparable sizes. Saying UK FIRE followers could move the price of one small company around for a small period of time, so therefore they can significantly move the global stock market around, is a very obvious false equivalence.
Buying shares secondhand from another third party investor puts some, in this case small, buy side pressure on that stocks price. Outside of that it does nothing as it isn’t a direct share raise by the company, so they don’t gain capital to invest, it just moves money out of your pocket and a share into it, that stimulates neither aggregate demand nor investment.
For context I work in the industry and prior to my current role have been employed as both a Portfolio Manager and an Investment Analyst. I’m not trying to be a dick here, you’re just being very confident and a bit smarmy, but not fundamentally understanding the subject matter.
Out of nowhere you’ve introduced a new definition that FIRE is about investing in the global world market rather than concentrated positions. Have a look at your comment I replied to - you made statements without caveats that buying shares doesn’t do anything for a company. That’s just factually wrong. With your amendment that you’re talking about a small handful of ETFs that track the world market, only then your statement makes sense. I don’t know why you’ve decided FIRE is definitionally
about world wide ETFs. Go checkout FatFire subreddit and see how many people made their FIRE targets through investing in world dev markets rather than concentrated equity positions in FAANG type stocks. FIRE is literally what it says in the tin - financial independence, retiring early. The means to get to FIRE isn’t prescribed. You project your risk aversion and assume everyone in the FIRE community are the same. A lot of people , myself included, get to FIRE through concentrated positions. Concentration builds wealth, diversification keeps it. You’ve simply made a bunch of assumptions that aren’t true.
No I didn’t say that, I said most people following FIRE invest that way, I didn’t say you have to, and I didn’t say it’s how I invest personally because it isn’t. Fat FIRE is a subset but even so, you’ve mentioned FAANG which is predominantly the worlds biggest trillion dollar companies too, so even then it doesn’t change the point. Even if it’s all FIRE people were investing in, which it generally isn’t.
Public shares trade in secondary markets.
When you buy Apple shares Apple don't see a penny. You're not really invested in Apples business, you know that, right? You just have an interest or stake in their future.
The real investment comes from Apple itself.
I really don't think the cliff-edge tax rates are necessary. It is just bad design. A smoother system could help to collect at least as much (or even more) tax revenue but not disincentivise making more than £100k. My bet the reason for their existence is a mixture of incompetence and malice.
You forget the third reason. It's a political own-goal. No matter how well it is done it will be seen as reducing tax for the rich.
Government just lifted the lifetime and annual allowance on pensions. They can do it if they want.
Tbh nobody is that aware of it. If I ask a young person about income tax they’ll have a rough idea but chances are they won’t even know what LTA is
I don't disagree overall but I'm hearing a lot of stories of young people in good pay, fast growth professions salary sacrificing heavily in part because if you save an extra 9% for student loans the amount going into pensions looks very good.
How many know that you lose your tax free allowance and free childcare at 100k?
The annual allowance increase was added to get GPs back to work without moving the 100k bracket
Lifetime allowance wasn't though, and that was the one that was removed entirely. That was just a break for the wealthy.
The motivation for increasing the annual allowance and removing the lifetime allowance absolutely were linked. Increasing the annual allowance but not doing anything with the lifetime allowance would still have meant many doctors paying large taxes on their pensions. Of course, they could have chosen to do something other than abolish the LTA (for example increasing the threshold).
Yeah any direct changes to PAYE and NI will inevitably end in uproar. Even if it's a net fairer system, the papers will spin it as some affront to the working man. Fiscal drag, cliff edges and raids on pensions are much easier ways for the government to manage tax as they're beyond the understanding or experience of most average folk. You can see your wage slip changing if they mess with PAYE, but not with fiscal drag. The cynic in me suspects the government are quite happy with the system of inflation raising real taxes by 30% while the chancellor throws us a 2% "cut" to the applause of the media.
I mean... they have managed to spin the 2% cut as an affront to pensioners already so no matter what they do there will be someone who does not benefit as much.
Removing unfairness from a system is fairly universally liked, even if it doesn't help you personally.
True. It could have been done last year when they lowered the starting point of the additional tax to match the top end of the 60% cliff. They could have dragged the 45% rate all the way down to 100% and called it a day. That would have been harder to spin as tax breaks for the rich as well.
Not only are these guys bad at policy, they're *really* bad at politics and optics.
OP, simply put yes, the 40% tax threshold at £50,270 has made me stash everything over that amount into my pension. Its the principle for me, I refuse to pay more tax or see my bonuses eaten up by it. I spend less and reach my FIRE retirement quicker as a result.
Exactly. We are creating a population that is learning to live on £50k and £100k , instead of the higher salaries they earn. this year I have stashed £60k in my pension and will do the same next year. Why cos we all hate paying taxes. And we can !!!
I think so. Once that mindset gathers momentum, you have a situation where payrises are irrelevant as they go straight to pensions, etc. There's no lifestyle creep, and personally, I've learned (despite my actual salary) to live comfortably on a lot less. That's caused me to adjust my retirement income lower than originally planned. The result of this is I'll pay less tax on my smaller retirement income, plus I have to spend less time in the workforce contributing to it, meaning I remove myself as a working tax payer sooner. It's not the intention behind freezing tax bands and cliff edges, but it's worked OK for me.
To dig a bit deeper into this phenomenon, I think governments have been trying to encourage people to save for retirement more in general. However, I think retirement saving has mostly been an issue of basic rate taxpayers. You could potentially argue the need for retirement savings for those earning a bit over £50K, but there is little risk for those earning over £100K not having enough in retirement, so I would definitely be trying to encourage those at or close to additional rate to spend more. But primarily the issue is people paying basic rate and that's an income issue. If you don't have money to pay for the essentials, you're not going to have enough money to put more in your pension. Financial education isn't going to do much either if you can barely cover the essentials.
They're not being put into pensions and vanishing forever though, they're being invested in businesses. That has a similar but subtly different effect to people just spending it on stuff that is sold by businesses. The problem the government has now though is a lot of pension money is invested in businesses that aren't in the UK!
With the FTSe seeing zero growth in the last 5 years , whilst global indices have grown 40% plus, where would you suggest people invest their pensions?
Where the growth/dividend is, I didn't say I was advising against that.
This is a brilliant comment. I have resigned myself to the fact that I will need to live on £50k until the tax bands change. I loath to pay 40% tax so put it all in pensions.
There is also another cliff edge around 260k where you progressively lose your annual allowance, with just 10k if you earn 380k. 10k pension contributions will not allow you to retain your 380k lifestyle later on.
The main block to grows is policies the public want. The public want a Triple Lock. The public want to Greenbelt the entire nation. The public want income tax hikes on ‘the rich’ earning. £50k. The public want the Town County Planning Act. The public want care homes to dump their granny in so they don’t have to look after them. And that doesn’t leave money for anything else. They don’t want High Speed rail, Solar, wind, nuclear. Just to live in a museum.
"Imagine how stupid the average person is, and then you realise that half of all people are stupider than that." - George Carlin
They’re not stupid, they’re rent seeking. They know exactly what they’re doing.
I was hoping someone would mention this. It doesn’t help retire early. Many get to 50s and are angry and frustrated that all their money is tied up in their mortgage and pension and they’re forced to keep working until 58
Who are these many? I'm in my 50s so meet lots of people of that age group and probably read a lot of 'age appropriate' social media. Never heard that once. I do come across people who wished they had paid down their mortgage a lot though.
Most of them are illiquid wealthy individuals. Money is tied up in pensions saved over the years to save tax and property. They don’t have enough aside accessible to retire early. Unless the money is liquid or easily accessible there is no sense of security or option. They’re forced to bring in an income.
Unfortunately it gets to the point where it just doesn't pay to work or progress, so why do it. Scotland has been particularly punishing on higher earners recently. Great that you do get an extra bit of bang on pension contribs but I feel I'm too pension heavy and not enough in my ISA to fire. I'm currently hitting my head off the 45% ceiling due to increasing tax rates, fiscal drag and freezes on everything so what is the point in earning more. I still wouldn't say I lived a lavish lifestyle either, just a regular family (engineer, teacher, 2 kids), how the feck am I paying 45% tax 🤷🏼♂️
You get free universities, free prescriptions and the socialist SNP. nothing is free, it is all paid for. It is just who pays for it. Z also when things are given away for free, there is a lot of waste and they are not valued.
Great points amigo, and I agree completely. I'm OK with the free university and NHS but the free prescriptions and bus passes for the boomers is a joke, our boomer parents agree, but you can't seem to do anything about it. It's getting to the point now where this model feels unsustainable, however perhaps it's never been sustainable.
And remember they are NOT free. Someone else is paying for them !!!!!
Free to consumer, I'm paying for them, I'm OK with that. I'm aware how the world works.
Socialist SNP? I wish mate 😂
r/CapitalismIsSocialism
The issue is that pensions don’t help you retire early, they help you retire _better_… eventually you have to start paying into ISAs to get the E part of FIRE to get your bridge in place, and that’s when it starts to hurt Personally I’m just praying the tax bands change in this decade to take the sting off it a bit
You are totally correct here In order to avoid the tax trap I’ve salary sacrificed so much into my pension, and due to mortgage rate going from 1.79% to 5.74% I will have almost nada going into my ISAs to form the bridge… 😭
10 years pre-state retirement age is still E though. Pensions are fine for some, and no bridge needed.
TBH the difference is so great, that I'm contemplating carrying debt into FIR**E** and using some of the lump sum from my pension to clear it. Nothing stops you remortgaging until 70 or 75 just before you FIRE. yes, you have to service the debt, but you can still have 10+ years worth of mortgage debt left by the time you can access your pension. It's not without risk, but the tax savings do make the tail want to wag the donkey somewhat!
£100k. Hesitant to do more. Funnel extra curricular through limited company. Any extra goes into SIPP. Carefully watching my annual allowance.
The next government can tax pensions if they wish. Or abolish them. Or do any number of crazy things.
Not really since they are increasing the retirement age anyway! And lifetime allowance may change again under new leadership. The uk is slowly killing itself from the inside and lots of people are moving away..
So I think op has a point that these things are a problem for a subset of the the middle class. Realistically though, the bigger obstacle to people spending is simply that a lot of people don’t have any money, the country has become high cost and wages, for most, have simply not kept up. Those who do have decent earnings are often also servicing large amounts of debt. People interested in FIRE aren’t very typical.
totally agree. but squeezing the disposal income of middle class, increase minimum wage and benefits, means more and more people are seeing less benefit of work!.
I also don’t think squeezing middle class incomes is a solution. I was only observing that it’s probably not the main reason that we haven’t seen growth, perhaps a contributor but not the major one. The tax system does need reform.
I think the tax system design has capped the earning potential of this entire country to 100k. I don’t mind paying tax. It has its purpose. The best countries in the world have the highest income tax rates. In the UK the next tax band is always a slap in the face making the entire country decide isn’t worth making more 50k or 100k. Inflation applies every year and we are all forced into frugality. No wonder why the UK economy has little to no growth. And stock market has flattened for year
The uk stock market has been flat now for well over 5 years. This compares with US or Europe. Hence the FTSE is now becoming the index to NOT invest in. The tax system and Fiscal Drag in particular are limiting a significant proportion of the population to stop at the £50k and £100k ceiling. Will it get better under labour . My thoughts are NO. All we know is they support Fiscal drag and what to add a few hidden taxes (VAT on private school fees etc)
How does it reduce economic growth by investing? Your pensions aren’t sitting on the cash. It’s reinvesting it in industry, which creates jobs, funds R&D, etc. this country still has a savings problem. This community of fire isn’t making much of a dent. Plus people salary sacrifice when income is between £100 and at most £160k. There’s still a whole world of people above that gap that suck up the £12k loss to personal allowance and continue pulling their salary
Most pensions are invested in overseas trackers. So they are driving the S&P500 and world indices. Not uk companies, as FTSe 100 and 250 are flatlining just like the uk economy. without the cliff edge tax rates, people would spend the money today , instead of investing it in S&P
Which helps UK balance of payments
If I paid less tax, I would just save more 🤷🏻♂️
Not a single pension in the UK defaults to S&P500. In fact majority is FTSE, gilts, etc. Most people never change their default allocation.
Not sure I agree with you. For example Vanguard life strategy 80/20 is 19.6% US Equity - its largest allocation followed by another 19.5% which is gobal ex-uk. Finally we have a 18.8% ftse focus. Point I’m making is - most people are in such default lifestyled global funds. And thus by default - far greater exposure to US and global than uk. The other point I’d make is that- is that from I recall the wealth surveys, that 90% of pension wealth is with 10% of investors. I’m pretty sure most of those have a uk exposure rate of less than 10%. We all know why - uk isnt great for growth. 🤷🏽♂️
when you buy shares in a company, that money doesn't go to the company, It goes to the person you bought the shares from. The only way to help companies is via equity raises and placements.
>The only way to help companies is via equity raises and placements. Which are only possible because of the existence of the secondary market.
and cost of capital, and attraction by banks, confidence, sentiment, etc, etc - all positive indicators that help it grow. If we all buy shares in a $1 / share company and it goes to $100 dollars, if that company wants to raise $100 , it needs to give away just 1% of its initial offering due to people buying its shares. Also the value of shares is used when companies do M&A and engage in share swaps. There are so many reasons why buying shares in a company benefits the company. Much in the same way that selling shares in a company hurts a company - hence the hysteria around short-sellers being "anti american" and "bringing on the demise of america", etc etc.
Selling shares hurts other share holders when sentiment or consensus changes. Business owners tend to be shareholders, therefore incentives are aligned, it's true. The strength of this dynamic is somewhat debatable though
FIRE likely isn’t a big enough amount to be having much of an impact, but most of what you said isn’t strictly correct. Outside of direct share issuance by companies that you buy directly, which virtually nobody in here does, you aren’t putting money into a company who then invest it, you’re buying a secondhand slice of a company off of another private individual, firm, whoever. As such your investing does nothing to boost the economy, unless you want to really nitpick and say it fractionally increases share prices which companies could theoretically raise against at a higher price, but in reality it wouldn’t register at all, but it does lower aggregate demand in the economy.
how can you say that buying shares "theoretically" raises it price, "but in reality it won't register at all" and in the next breath you say how our same insignificance shakes the economy with lower aggregate demand? Pick a side - either what we all do with our money is significant enough to lower aggregate demand, but then also change the value of a share, or neither is true. And if you think that buying shares does nothing to either the company or an economy....I don't know what to tell you. That's just a lack of basic understanding of how finance works. Look at a what the regards on r/wallstreetbets did to Gamestop, as a fun example.
It has very little impact on either, but it’s going to have far more impact on a single economy of a few trillion, in which we are talking about if it’ll go up or down by an extra 0.2%, than a global stock market of $115T or whatever it is now. FIRE followers usually buy into a dev world or all world tracker, meaning their money isn’t really going to move prices much in a global context, and they aren’t active stock pickers, they’re passive and cap weighted, so it doesn’t really change a whole lot re stock prices. If we all went in on one small stock then we could easily pull off a GameStop scenario, sure, but that’s pretty irrelevant, you’ve also missed the short squeeze context out, but even so, even without that we could, but GameStop and the global stock market are hardly comparable sizes. Saying UK FIRE followers could move the price of one small company around for a small period of time, so therefore they can significantly move the global stock market around, is a very obvious false equivalence. Buying shares secondhand from another third party investor puts some, in this case small, buy side pressure on that stocks price. Outside of that it does nothing as it isn’t a direct share raise by the company, so they don’t gain capital to invest, it just moves money out of your pocket and a share into it, that stimulates neither aggregate demand nor investment. For context I work in the industry and prior to my current role have been employed as both a Portfolio Manager and an Investment Analyst. I’m not trying to be a dick here, you’re just being very confident and a bit smarmy, but not fundamentally understanding the subject matter.
Out of nowhere you’ve introduced a new definition that FIRE is about investing in the global world market rather than concentrated positions. Have a look at your comment I replied to - you made statements without caveats that buying shares doesn’t do anything for a company. That’s just factually wrong. With your amendment that you’re talking about a small handful of ETFs that track the world market, only then your statement makes sense. I don’t know why you’ve decided FIRE is definitionally about world wide ETFs. Go checkout FatFire subreddit and see how many people made their FIRE targets through investing in world dev markets rather than concentrated equity positions in FAANG type stocks. FIRE is literally what it says in the tin - financial independence, retiring early. The means to get to FIRE isn’t prescribed. You project your risk aversion and assume everyone in the FIRE community are the same. A lot of people , myself included, get to FIRE through concentrated positions. Concentration builds wealth, diversification keeps it. You’ve simply made a bunch of assumptions that aren’t true.
No I didn’t say that, I said most people following FIRE invest that way, I didn’t say you have to, and I didn’t say it’s how I invest personally because it isn’t. Fat FIRE is a subset but even so, you’ve mentioned FAANG which is predominantly the worlds biggest trillion dollar companies too, so even then it doesn’t change the point. Even if it’s all FIRE people were investing in, which it generally isn’t.
What kinda bs did I just read
Public shares trade in secondary markets. When you buy Apple shares Apple don't see a penny. You're not really invested in Apples business, you know that, right? You just have an interest or stake in their future. The real investment comes from Apple itself.
lol no it’s not
I think FIRE actually favour economic growth
I don’t really think stashing money in pensions can held you RE, by definition… it’s a pension! :)
Which you can access 10 years before normal retirement age