The “unrealized loss” riddle

Note: this post has been updated in November 2011

-$62,734.06. That’s the “unrealized” loss we’ve had in one of the mutual funds in our retirement account, according to the statement we just received.

A $62,734.06 unrealized loss.

I keep staring at the statement, hoping that number will somehow magically turn positive.  After all, we’ve had a nice run-up in the stock market recently, and that mutual fund has one of the best long-term track records of any fund.

What the heck is an unrealized loss, anyway?

I realize I’ve lost a whole bunch of money.  And I remember working my butt off to make that money!”

A $62,734 “unrealized loss.”  Is that an oxymoron, like “Great Depression,” “small fortune,” “accurate forecast” and “quickly reboot”?

OXYMORON definedI dunno if it qualifies as an oxymoron.  But I do know it’s moronic that we pin our hopes and plans for financial and retirement security on things we can’t predict or count on!

My husband Larry is 61 and theoretically four years away from retirement.  He probably won’t retire when he’s 65 because he says he’d get bored.  But if we were relying on the conventional wisdom about saving for retirement, it wouldn’t even be an option for him.

Did you know that 40% of retirees were forced to retire sooner than planned, due to health problems, job layoffs and other factors beyond their control?

Of course, none of us want to think that could happen to us… but what would you do if it did?

Another mutual fund in our retirement account shows an $8,012.16 “unrealized” gain.

And there lies the rub:  You don’t actually lock in a gain or loss until you sell an investment.

(November 22, 2011 Update:   Our most recent retirement account statement shows our “unrealized loss” is virtually unchanged since I wrote this blog post almost a year ago.  And looking at the Dow’s ups and downs over the past year makes a day on the roller coasters at Six Flags look tame.)

Oxymoron cloud

Unfortunately, studies and history show that most of us are far more successful at locking in our losses than our gains.

Can you tell me what your retirement account will be worth on the day you plan to tap into it?  (Not what you hope it will be.)  If your answer is “no,” how can you even call it a plan? And what will you do if the market plunges by 50% – againright before you planned to retire?

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Dow 11,000: Déjà vu all over again?

Bill Clinton was President, the world awaited the potentially disastrous consequences of the Y2K computer bug, and – oh, yeah – the Dow closed above 11,000 for the first time in history.

Yogi Berra

The date was May 3rd, 1999, and to quote Yogi Berra, nearly eleven years later,

This is like deja vu all over again”

Yogi Berra

The Wall Street spin-makers are pointing out what a “big accomplishment it is for a measure that was below 7,000 only a year ago” to recapture the 11,000 level.

Before we pop the cork on a bottle of champagne, here’s a few sobering questions to ask yourself…

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Bank On Yourself: A financial plan you can count on

Oh what a roller-coaster year this has been!  Our entire financial system and economy almost fell off a cliff.

Bailout

And while there are some hopeful signs of new life in the economy, this year has also brought us:

  • Massive bailouts
  • A tripling of an already-bloated federal deficit
  • A falling dollar
  • Rising foreclosures (and likely to spike as billions of dollars in ARM’s are now coming up for adjustment)
  • Major banks and investment houses taking on three times (!) the risk they were before the collapse
Bailout

So what do you think next year has in store for us?

No one really knows for sure.  (Well, except maybe the folks at the Psychic Hotline.)  So how do you prepare for a very uncertain future?

Here’s a quick quiz that may reveal an answer for you…

What’s the one financial asset that increased in value during the market crash of 2008?  And in 1929?  And in every period of economic boom and bust in between?

Answer:  The product used for Bank On Yourself:  Cash-value life insurance.

As I’ve mentioned, my husband Larry and I now have 18 Bank On Yourself policies.  I’ve picked one of them to show you how a dividend-paying whole life policy like this can grow over time – even when the markets are plummeting.  It’s a great example of how Bank On Yourself gives you the peace of mind that lets you sleep at night.

Here’s how much this plan has grown each year since the beginning of 2000, a period that includes not one, but TWO devastating market crashes.  In four of these years, the S&P 500 was down for the year, as you can see in this side-by-side comparison:

chart
chart

If you had put $10,000 into an S&P 500 Index fund at the beginning of 2000, how much do you think it would be worth today?

Take a guess before you read on.

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