A recent Reddit post I came across in the r/fatFIRE community raised an important question for anyone looking to retire early and become financially independent: How should illiquid investments factor into your FIRE calculations?

The post, shared by user GottaHustle_999, outlined their impressive financial situation:

• $2.7M in retirement accounts (IRA/401k)
• $4.4M in brokerage accounts (75% stocks, 25% bonds/money market)
• $400k in 529 plans for their two children
• $1.9M in real estate (fully paid off) in a medium-high cost of living (MHCOL) area
• $600k in illiquid assets, including venture capital (VC) limited partnerships and private investments.

Their illiquid investments vary widely in how much they payout and their liquidity timelines. Therefore, their main question is how these should be included in FIRE planning calculations. 

The Challenge of Illiquid Investments

Illiquid investments can include things like private equity, venture capital, and non-traded real estate. Often, these investments may offer high returns, but they lack flexibility and immediate access. You can’t access them quickly like you can stocks bonds. 

The value of illiquid investments can also be harder to estimate, especially for private partnerships. You can’t quite know what you’re going to get until you get it! Some investments may generate income sporadically or only at the end of their term, making it difficult to predict cash flow.

Should Illiquid Investments Count Toward Your FIRE Number?

The answer depends on your goals, risk tolerance, and time horizon. Here are a few potential approaches:

1. Conservative Exclusion: You may not want to count illiquid investments towards your FIRE calculations at all if you’re risk-averse. 
2. Partial Inclusion: You can include only a portion of your illiquid investments, such as those that are more easy to predict. 
3. Full Inclusion: It is possible to include your illiquid investments completely, but you’ll need to make a few adjustments. For instance, you may only want to include a smaller portion of these investments, like 50%. 

Tailoring FIRE to Your Situation

For GottaHustle_999, their portfolio of $7.5M in accessible assets (retirement, brokerage, and 529 plans) likely provides a solid foundation for FIRE. I’d recommend that they use the illiquid investments as an added layer of security, allowing them to potentially take on greater risks or enjoy a higher standard of living later in life. 

Ultimately, the decision comes down to what brings you peace of mind. Many people decide to use these investments more as an “insurance fund” for unexpected expenses later in life, not as planned income. 

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