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It has been a wild week, hearing the gloom and doom on Wall Street with the credit crisis.

All That Money You've Lost - Where Did It Go?

I found this article to be helpful. Realistically, all that "gain" or "loss" that we see in the market, whether the stock market or the housing market, is all on paper. It only makes a difference if you are looking to buy or sell soon. Otherwise, you just keep the asset, whether on paper (stocks) or the real asset of your house, until later. And most likely it will go back up later in the future.

Many people have treated houses as short term investments over the last few years rather than the longer term assets that they are. Interest rates were low. People borrowed from equity. This demand increased the value on paper, governments greedily reacted by raising the appraised value, which fed more into the value increase. My home doubled in value from 1994 to 2005. I didn't do that much to it to deserve that increased valuation. And my taxes seriously increased also. No one screamed bloody murder that their house was rising so fast in value.

My 401K went down 6% in the first week of October. And that is before the bigger drops in the next few days. I moved some of it into bonds. If everyone did that, it would bring the stock market down lower as well. Realistically, if you are greater than 5 years from retirement, it doesn't make much difference. Sure, you won't make 10+% ROI in the next year, but you are not going to make that much more anywhere else. And most of us have limitations of what we can do with the money. We can't really touch it until retirement anyway.

So did I really lose the money? I lost the potential, but in a good market I could have gainjed more potential. That's why I like the article linked to above. It puts it in perspective.

Posted on Sunday, October 12, 2008 2:29 PM | Back to top


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