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After a brief reprieve following the inauguration where it looked like President Trump may have been open to not starting a trade war, it looks like tariffs are back on the table, with him reiterating how big of a fan of tariffs he was in a rambling press conference, and then again in his remarks to the World Economic Forum in Davos.
Economists have been scrambling to understand the potential impact of these across-the-board tariffs of the US’s two biggest trading partners, and the results look terrible. 25% tariffs like what President Trump is suggesting would carve 2.5% GDP off of Canada’s economy, resulting in an instant recession. For comparison, this is about twice the economic impact of the COVID-19 pandemic, so if you thought 2020 was tough, look out below.
Similar threats against Mexico promise to spin their economy into a recession as well, and the impact of retaliatory tariffs from our government and the Mexican government would spark inflation in all three countries, resulting in a dreaded combination of recession and high inflation.
Granted, it’s entirely possible that all these tariff threats are just that, threats, designed to throw everyone off balance and extract concessions from our government, but it’s also entirely possible that President Trump simply doesn’t care about the devastating impact that tariffs would have and may impose them anyway.
All this means that there’s a good chance that a recession is coming to Canada sometime in 2025. This could not come at a worse time for Canadian households, who are already dealing with record-high debt levels and a cost of living crisis. If a recession happens, many Canadian families are going to have an extremely difficult time coping.
So under this backdrop, FIRECracker and I sat down and had a detailed discussion about our own plans should Canada lurch into a recession. What should the Millennial Revolution family to do keep us and Little MatchStick safe?
Don’t Panic Sell
Fortunately, this ain’t our first rodeo.
It didn’t feel like it at the time, but we had the good fortune of encountering our first major market crash way back in 2008. Why was this good? Because this was right at the beginning of our investing journey, and we learned what to do and what not to do early on.
The crisis back then was also a world economic slump and it was hella scary because the entire global financial system was in danger of collapsing. Stock markets had been cut in half and houses were being repossessed left and right.
But even then, when every cell in my body was screaming at me to sell everything and move to cash, I listened to the principles of index investing and didn’t. Instead, I continued ploughing money from my paycheck into the stock markets as it fell. And because I did that, when markets inevitably rebounded, we were able to participate in the upswing stronger than we felt the downswing since we had bought so many more ETF units on sale. A few years later, we had recovered all our losses and continued on to enjoy the subsequent decade-long bull market.
So if this crash ends up happening, we’ll use the same strategy. Even if our portfolio gets cut in half, we won’t be selling, and instead we’ll be deploying any money we earn from our writing careers into the stock market as it falls.
Fortunately, the fact that we hit Dividend-FIRE a few years ago makes this much easier. Because we can live completely off the dividends from our portfolio, we don’t actually need to sell anything to cover our living expenses.
If you’re still in the accumulation phase, do what we did back in 2008. Keeping buying into the falling markets and wait for the inevitable rebound. And if you just recently retired and are at risk of sequence of returns screwing your retirement over, make sure your Yield Shield and Cash Cushion is ready to go. You may need it very soon.
Cash Is King
Retirement is all about managing your cash, and on this front we are in good shape.
Living off our dividends doesn’t mean we literally spend it as soon as we receive it. Because different ETFs pay out at different times, this would result in a constantly changing monthly budget that would be a nightmare to manage. Instead, as dividends come in, we sweep it up into money market ETFs like CMR (CAD) and SHV (USD). Then, at the end of the year, we sell off our money market funds and withdraw everything.
So that means that our living expenses budget for 2025 was actually paid out over the course of 2024. That also means that no matter what happens this year, it can’t affect our 2025 budget, since that cash has already been harvested and sitting in a savings account.
A downturn could affect our 2026 budget, but only if our dividends get cut.
Dividend cuts are actually pretty rare, and even during the 2008 Great Financial Crisis, dividends got reduced by about 10% before recovering the next year. Also, during a recession prices plummet, so the decrease in the cost of living greatly exceeds any potential cut in dividends. So given this year’s projected dividend payout of $73,000, a 10% cut would bring our dividend income down to about $65,700.
I showed this “worst case” spending target to FIRECracker and she said it would be a piece of cake. According to our 2024 spending numbers, even with optional, luxury “Portfolio B” spending, we spent a total of $61k, so we’d be able to fit this within a budget of $65,700 without breaking a sweat.
And finally, we have the greatest weapon of all…
Geographic Arbitrage
If shit hits the fan, we’re moving to Thailand.
Using travel as a strategy to reduce costs in retirement sounds counter-intuitive, but when you spend time in lower cost of living regions like Eastern Europe or South East Asia, it can make a big difference. The cost of everything is so much cheaper in a place like Thailand, Vietnam, or Poland that you can easily find yourself spending less than your dividend yield, meaning you’d be making money while sitting on a beach!
Going back to fully nomadic has always been a goal of ours ever since Little MatchStick was born, but the process of figuring out how to be parents (not to mention all the vaccinations he needs to get in the first year) kept us pretty solidly anchored in Canada for his first year of life.
But now that he’s gotten a bit older and he’s all caught up in his vaccinations, going nomadic is back on the table!
Honestly, we wanted to do this in 2025 anyway, but now that the news has gotten all crazy, it’s pushing us to go out onto the road even more. Travelling with a young child is definitely more work than before, and we’re definitely going to have to go slower than when it was just the two of us, but this would have the dual effect of lowering our costs even more while getting away from the craziness happening on this side of the world. Win-win.
Conclusion
FIRE really is the gift that keeps on giving. After FIRECracker and I put together our game plan for countering these tariff threats, we realized that we have tons of options. Having our money invested in low-cost index funds means it’s liquid, we can access it any time, and it generates a passive income that we can spend anywhere in the world.
Overleveraged homeowners, on the other hand, are screwed if a recession hits them and they lose their job. In fact, with Canada’s historically high levels of household indebtedness, plus mortgages that will renew higher this year, any spike in unemployment has the potential of spiralling into a full-blown foreclosure crisis.
I sincerely hope that all of this tariff talk is just bluster and that a painful recession never actually happens. But if it does, I’m confident that we’ll be just fine because of the gift of freedom that FIRE has given us.
How about you? Do you have a plan in place if a recession hits this year? Let’s hear it in the comments below!
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Please don’t take your blog the direction of political bias. We see enough of that everywhere else.
There are also many people excited about the direction of the economy which could mean great things.
How are you enjoying them egg prices? LOL
#TrumpVirus
#TrumpInflation
If you think egg pricing was caused by Trump and not biden, I need to short the Canadian educational system.
Trumpflation and Trump’s illegal tariff taxes, which violate the trade agreements are going to be a total disaster. Trump has declared economic war on Canada and Mexico, and no one trusts the USA anymore, as they do not keep their word.
Sure, Trump’s associates are going to make billions, but everyone else is going to suffer very badly.
Only Canadians and Mexicans
will suffer, not Americans.
Free life tip.
Anyone who is MAGA cannot be trusted. When given the opportunity, they will stab you in the back, to steal your assets, like their criminal in Chief.
No need to confront them, just make a note of who is MAGA at this point, and be sure to be ready to get them, before they get you. Keep your enemies close.
Its going to come down to that, its going to be far far worse than anyone predicted.
Right now, MAGA is cutting off Medicaid payments, they don’t care if people are dying in the streets. The economic war has begun.
Thank you for giving us a spark of optimism. I am planning a trip to Thailand this year as well to test out potential long-term resettlement with my boyfriend in case Canada gets invaded by our new authoritarian neighbours. (can’t believe I just typed that out…)
Online media has been manipulated by foreign bad actors to such an extent that large swaths of our population are now convinced there’s nothing wrong with obvious Nazi salutes, foreign election meddling, presidential immunity, theocratic governance, forcing teenage girls to give birth, the construction of internment camps, etc.
This isn’t a normal political disagreement. It’s outright fascism.
Well said, Andrew. Thank you!
VERY WELL said Andrew
Your words are recomforting and calming. thanks from Spain.
Tariffs are being used as leverage to negotiate better terms for the US on a variety of issues, with the recent disagreement with Colombia being the most recent example. There really isn’t more to it than that. Recessions happen naturally, and will occur regardless of tariffs or whoever our president is, so we should always be prepared. The US is in the late cycle of a long term bull run and valuations are near historic highs, which in my mind are more indicative factors of a coming recession. I agree with comments of the previous poster. Mixing political emotion with investment decisions is never recommended.
Smart.
Whether the economy crashes or not, my advice is don’t miss the opportunity to get out and do some long-term travel before LMS hits kindergarten! My own experience as the FIRE’d parent of a now 11-year-old is that school becomes the main obstacle to travel once you are forced into the meager and expensive windows of time allowed by the academic calendar. Of course, homeschooling is one workaround but it isn’t for everyone (certainly not my family). Worth thinking about!
Wise words!
I have been retired one year. We are Boomers so Millenial Revolution wasn’t around when we started our financial journey. So grateful for your insights.
Our pensions, Social Security and interest income cover our expenses with about $6,500 left monthly. We are saving or investing the remainder in EFTs, mutual funds, T-bills, a few direct stock purchases and CDs. We had short term and long term capital gains. Since we have about 20 or more years to beat inflation before we kick the bucket we will continue investing especially during a recession.
I do wish we had someone to look at our financial situation and tell me we are on the right path. I don’t want to hand over to a Financial Planner for a continuing percentage of our earnings.
Wishing you the best in 2025 including some fun travel.
We are about five years out from FIRE, so were also hoping to have someone basically check our work. Not all financial advisors require assets under management. We found one who is fiduciary (legally required to act in our best interest), independent (i.e., not connected to a particular company and only able/interested in those funds) and fee only, for a year. We’ll then stop using him (he’s aware) and hopefully pick back up again just prior to retirement, so he can advise us/confirm next steps.
I know there are those who can go it solo for the whole journey (and I’m jealous of both their skills and their confidence!), but we wanted someone to help us juuuust in case. Good luck. ☺️
We do use Empower as suggested by Firecracker Millennial. The plan states we have a 99% chance of success. That is some good financial planning software.
We may find a fee only advisor. Just for reassurance.
Ignore David and Bill, most of us in the US appreciate your political concern.
Exactly who is excited for our economy David? Not sure any of the financial analyst here in the US think what Trump is doing is exciting or useful.
Why on earth Bill feels a tariffs will put the US in a better place is beyond me. Pretty sure we enjoyed double-digit returns (after a horrific pandemic and very high inflation) the past 2 years without bullying other countries with tariffs, but sure, lets do that and cause a recession – just incase Bill was confused, causing a recession is not one that happens “naturally”.
Thank you again for sharing your plan and how others who aspire to your status can learn from your teachings. Do you have the same ETFs with dividends that you mention in the book?
As a US financial analyst, I’m very, very excited.
Sunday’s Greaterfool blog talked about FIRE and mentioned you two. It seemed outdated and unflattering. Perhaps you need to send Mr. Turner a link to your current status. Cheers.
Nomadic Canadians currently in La Paz Bolivia
Garth constantly lives up to his blogging name.
Love seeing all the comments in there by retired FIRE readers.
I am clinging to an old MMM post about your circle of control right now. I did what was within my power – I voted – and part of living in a democracy is that sometimes the majority doesn’t do what you think is right. Regardless, we’re looking at four years of these types of tactics from the current administration, so my circle of control involves how I react to those events.
Which, as far as my family’s finances are concerned, involve not panicking. We were utterly sure that a recession was going to hit in 2016/2017 with our first round of this, and it was not the case. Like how 2008 was a hard lesson for FIRECracker and Wanderer about not panic selling, that was a lesson for me about how politics and the economy don’t behave the way we might expect. (Fortunately, I had at least read about FIRE investing during the 2008 crash, so I was fully prepared to grit my teeth and throw money into index funds, no matter what).
Therefore, as you’ve already said, stick to the plan and focus on reducing whatever risk you currently hold, whether that be paying off debt or using geographic arbitrage if that’s an option. When we say that FIRE involves having options, this is what we mean, and simply having options are the greatest thing you can have at any time.
The majority voted against the previous government….the House the Senate and the popular vote, clean sweep…tariffs are a great starting point for negotiations
Did you know the Democrats gained 3 seats in the House of Representatives during the 2024 election?
I bet you didn’t know that.
But they still have a minority. And we don’t vote for entire house at each election date. So your point makes no sense in the context. Upgrade your education system.
Yes. We should upgrade our education system by canceling the Department of Education first. Go Project 2025! LOL
This was not a political post at all. Trump is threatening to put Canada into a recession with his illegal tariff taxes, which is a declaration of economic war. The auto industry could collapse.
So its proper to have a Plan C, but for most people they are just going to get hammered with Trumpflation combined with a recession.
China will pick up the slack, and the US will lose it place. But Trump will make billions personally off meme coins.
I love how people call tariffs “illegal”. Lol. They have zero understanding of sovereignty and that all treaties are enforceable until any party backs out. That’s called sovereignty. And then you have world tribunals that try to “enforce” these things with zero authority and that completely violate sovereignty concepts. People are truly dillusional.
I couldn’t help myself when I read “Instead, as dividends come in, we sweep it up into money market ETFs like CMR (CAD) and SHV (USD).” So I Googled it and CMR is a money market but when I looked up SHV, well that is “iShares Short Treasury Bond ETF” and not a money market vehicle. Can we get a correction for the U.S. money market ticker or clarification?
Thanks, I learn stuff every day!
Most MMF’s are invested in same risk/duration securities as the funds he mentioned. Your point doesn’t make sense.
Yes, please I have the same doubt.
No foreign companies will sign deals with the USA, as Trump is a lunatic and might bankrupt you with his Trump tariff tax. China probably has more credibility now than the US due to Trump’s insanity and instability.
Well said!! Can’t wait to go back to these posts 4 years from now and say, “told you so”.
Trump only won because of Republican voter fraud.
It was an illegitimate election, and he is an illegitimate president.
Always a dig against homeowners. We get it. You missed out on buying in 2010-2013, prices have zoomed higher and you are priced out of buying a single family home in a decent neighborhood so you are considering moving to Thailand in a recession.
I understand the frustration. But open your eyes, recognize you missed the boat, and move on.
To make great wealth you need to take greater risks.
Your house asset didn’t appreciate, the value of your dollar depreciated and your standard of living fell drastically. You may not understand but your children living in poverty will.
Ok. So buying a house in the suburbs was that great risk you took which made you great wealth? Living on the edge. Exciting! I love how you roll!
I beg to differ. I think we all benefit from the alternative perspective on real estate that MR has expressed. It’s very good food for thought.
Buying real estate needs careful consideration, it’s not always the right decision and will not always work out well.
And BTW, real estate, and Toronto real estate specifically, is not the only investment that has done well in the last 10 years.
Long before anyone invented Biden, Harris, or Trump, I was thinking about claiming Italian citizenship based on my late Italian mother. I’m still thinking about it and wondering if there are any drawbacks (such as being taxed in 2 countries–actually 3, because I’m an American who lives in Taiwan–or whatever). I’ve been following a YouTuber called Capitalist Nomad who says, “Go where you’re treated best.” I’d like to have more options. Options are great: Donald Biden, Joe Trump, et al have nothing to do with it. I’m a permanent resident of Taiwan, but I’m always on the lookout for another hide site in case I hear the sound of, “Oh, sinner man, where you going to run to?” If anyone else out there has experienced claiming Italian citizenship based on Italian bloodlines, kindly speak up. Thanks!
Benvenuto in Italia, compare!
Sorry, Italian by birth here. But I can still tell you about Italian taxes — they’re bad.
Capital gains are taxed, there is no high threshold like in the US.
You get better health care for a fraction of the cost.
And the person currently in charge is happy to be seen as Trump’s lapdog and Musk’s latest love interest.
Overall, for me it’s a no. I reside abroad for the above reasons.
I am mostly invested in US stocks and have moved most of my cash to USD a while back. I have also just moved to Japan where the cost of living is much lower. I just retired and have enough cash and dividends to get me through a market correction. Thanks to you too for encouraging me!
I for one am hopeful for a 2nd Trump term. Good for energy and hopefully for the overall market.
You hope a recession never happens? Why not throw in world peace and candy for everyone? I hope the same, but I’m an old timer and my experience says recessions are inevitable and frequent and the next one is long overdue for both the US and Canada. It is coming regardless of who is your Prime Minister or our President. Politics aside, recessions are always just around the corner, winter is always coming. I’m glad you are well prepared for it, me too. But I also share your concern for those who are not. While the US administration might lean toward some things that hurt the Canadian economy, it also might greatly increase the value of your energy resources. Its really hard to predict.
I don’t think the issue is so much a stock market crash (which of course could happen any time, recession or not), but rather a perfect storm of the tariffs resulting in both high inflation in Canada and a plummeting Canadian dollar. Half your portfolio is invested in currencies outside of Canada which is a good thing – you can use those potential currency gains to fund your life within Canada. But you may be dealing with higher prices at home. Or you could move to Thailand which sounds awesome, but if the Canadian dollar continues to tank then it won’t stretch as far internationally, even in low-cost places like Thailand. So I would run some numbers with your 65k dividend budget to see if you can handle a 10-15% price increase in Canada or abroad, which should hopefully give you peace of mind that you can handle both scenarios. I’m sure you guys will be just fine though! 🙂
Do not forget about the “departure” tax that is triggered when you become a non-resident of Canada for tax purposes.
Why sell the MMF and put into high yield? Why not just sell the mmf over the course of the year directly to checking and save a step? Surely your mmf doesn’t have much risk…
I’m interested in visiting places like Thailand, Vietnam, Malaysia, the Philippines, etc. but my family members are terrified for me. They say it is too dangerous, especially for a solo traveller.
They keep sending me links to incidents like the Chinese actor that got kidnapped in Thailand and enslaved in a scam centre in Myanmar. Or about the bullet scam at Manila airport. Or reminding me about that distant uncle who travelled to Thailand and was never heard from again. (Our family never recovered his body.) Or reminding me about my uncle who got drugged in his hotel room in Thailand and had his expensive camera stolen while he was blacked out. Etc.
Perhaps you can write a post about what I can tell my family to allay their fears?
I spent a full year traveling full time through Mexico followed by almost three years in Southeast/East Asia. Never once did I feel unsafe. This was especially true in Thailand and Malaysia. Although you need to be smart and aware of your surroundings any place you go, generally speaking, Southeast Asia is safe. How many places in the world can a person park their motorbike on the street and leave their helmet on it all day without fear of it being stolen? It may be a simple example, but a good example of the culture and crime (or lack thereof) there. In Taiwan, I was amazed at how local people would leave their phones and purses unattended at cafes with outdoor seating. Again, I’m not suggesting you should not be vigilant, just challenging your parent’s premise regarding the lack of safety in places they are not familiar with. I’ve had quite a few people in my home country if the U.S.A. caution me about being careful on my travels. Some of them have never been outside of their own city or town (except maybe the obligatory trip to an all inclusive resort in the Caribbean). Needless to say, I take their advice with a grain of salt… and wish them and their children safety as well.
It’s good to know that as a family, you Millennial Revolutionaries have plenty of options.
As a country, Canada has options too. For example,
https://www.economist.com/europe/2025/01/02/why-canada-should-join-the-eu
Let’s leave Trump alone, whining in the toddler room.
No need to bother any more with the Southern Territories.
The sobering question is once Canada becomes part of the U.S., will Canadians still get universal healthcare?
Forget tariffs, it’s the crackdown on immigration that will be the biggest inflation problem. Thousands of farms without any workers already because no, not only criminals are being deported, it’s every single undocumented and I know it because I own a small farm here in Nevada.
Americans don’t want to do the hard work and the few that will do ask 4x what undocumented immigrants were paid.
Trump wont back down and guess who will pay the price? Yeah We the People.
Meanwhile FED will have to raise rates again to contain inflation. Mark my words. Welcome to Madness 2.0 – hope you’re happy
Guys, why are you using those ETFs to park the cash and not a money market account? Please let me know; thank you!
Another thought provoking post from you guys! Always love reading what you have to say 🙂 glad to hear you are getting some more sleep these days too!
Thank you so much for the Cash is King section. This is what I’ve been missing: how do I determine how to make my annual draw. I’ve been following you for years and am happy to say we are FI/retired/enjoying life, as of last month.
Using dividends during the year to buy CMR, which becomes the next years’ draw – Thank You!
I agree with Kristy and Bryce on this one. This Trump crap doesn’t have a good track record, look what happened the last time by the second month of his presidency. What these people try to do is use external force to control other people with the unconscious perception that by doing so they will be able to control their terrifying inner world. Inside them they’re frightened, weak, hurt and deeply vulnerable children. Elon Musk is another example. This guy has back pain and had intervertebral disc replacements. That tells you everything you need to know about him.
Some people will never learn. Mark my words, I bet there will be another pandemic. This time I hope it’s Airborne Ebola.
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