It is basically making it a lot easier. Thanks guys!

This is a response to Frugal Bachelor who noted that pf bloggers have gotten awfully quiet about the market. On the same note, pf bloggers have also gotten awfully quiet about the 100 push up challenge, but I digress (as usual).

For me and other people who do not want to rely on the job market as a source of income, this market crash is not a tragedy. It is an awesome opportunity! I am bullish on extreme early retirement πŸ™‚

What we are seeing is the greatest wealth transfer in a generation from those who are selling to those who are buying. Many people make the mistake of completely ignoring what they are buying. Yes, the market has crashed, but I now have many more shares than before (larger fraction of the entire economy) and they are cheaper to buy too. How can this not be a good thing?

I’ll tell you why. Because people have developed some screwed up perceptions about wealth. You see, in this economy wealth has come to be asset based rather than income based. When something is income based, you get a salary, or dividends or interest payments. Someone is actively giving you money. If these money transfers are large, you are rich. When something is asset based, you rely on appreciation of something you own, that is, that someone else will buy what you own for more than what you paid for it. This is essentially nothing but long term trading and it is not a good idea. It is especially heinous in an inflationary Keynesian economy. Here people get used to assets inflating. If they own them (houses), then they are happy (nobody cares about those who do not own houses who are naturally unhappy). If they do not own them (oil), then they are unhappy and talk about taxing windfalls. Asset bubbles are simply an emergent systemic behavior of a Keynesian (government stimulus) based economy.

Assets do not make you rich. Income makes you rich. Assets make you wealthy. However, as many are discovering, paper wealth is not real wealth. What makes the current market great is that there are many more opportunities for buying income generating assets.

For extreme early retirement, I am not going to stake my financial stability on past results, even when they are based on Monte Carlo simulations, rather I am going to arrange for an alternative income stream (stock and bond based) that will generate enough income for me without ever having to sell anything.

This means I do not care so much about my networth as I care about two other factors. Those factors are

  1. How much income I’m generating
  2. How much I spend

Thanks to the market decline the first one just got easier. Twice as easy with the caveat that some companies might halt their dividend. In terms of how much I spend, I am already doing pretty well.

As far as I am concerned, with an income generating portfolio, the market can stay flat forever, something it has done before for 10-15 years. I do not have a net worth target. I only have income and expense targets and these are a lot less volatile than asset based targets.

Originally posted 2008-11-24 10:55:42.