How I look at $ in the real world vs my retirement accounts

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physicsgal
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How I look at $ in the real world vs my retirement accounts

Post by physicsgal » Wed Jul 09, 2014 2:48 pm

I've just started a new additional investment from my paycheck to add $500 into a 403b during each pay period. The Vanguard lady at my work that I met with convinced me this is a better use of my money then paying extra on my mortgage, which you may or may not agree with but I'm convinced now it's right for me. Anyways, since it's the first month that the money went into my 403b that meant that today, when I opened up Mint and saw that my balance is now ~$496 I had a realization that I lost $4 already. Of course, in the long run I will end up with much more than that. But it made me think about how differently I contextualize money in my retirement accounts vs money that I use in the real world.

Since I'm into the idea of early retirement and relatively extreme frugality, MMM style not ERE which is a bit much for me, I pinch pennies regularly. Mostly I choose to only spend money on things that I actually really value and not waste money on things that don't make me happier or healthier. Losing $4 already made me realize, I'm actually quite careful with $4 in my spending in the real world, while I'm loosing $4 and actually much more sometimes in the market in the daily fluctuations, and I'm sure I will lose a lot more next time there is a market downturn. It just kind of seemed funny to me that I don't mind one bit when I lose $4 in the market because I know it's a long term thing that is out of my control but I would hesitate to spend $4 unless I knew it was on something worthwhile.

Anyone else feel this way? This must be really weird for people who are actually retired and spending from their retirement accounts. Then that $4 you lose is the same $4 that you would have spent, they aren't even separated by the boxes of "Roth IRA" vs "checking account" so much. This is part of why I never ended up taking $ out of my Roth for the solar panels I bought on loan. I didn't want to "taint" the way I look at my Roth money and think of it more like "real" money. Anyone else have thoughts on this? Do you think of your retirement money differently from "real" money?

OutInThirteen
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Re: How I look at $ in the real world vs my retirement accou

Post by OutInThirteen » Wed Jul 09, 2014 3:15 pm

Now that my wife and I are retired, our retirement money is just part of our "real" money. When we need to supplement income from my pension, I withdraw money from one of my retirement accounts and transfer it into our brokerage account, which is set up with check writing and electronic funds transfer to my brick and mortar bank checking account. My wife and I are fortunate in that when two more pensions and SS kick in two years from now, we should never need to withdraw from retirement accounts for basic or discretionary expenses. That way (hopefully) we'd be covered if we were to face extraordinary medical expenses later in life.

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mhc
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Re: How I look at $ in the real world vs my retirement accou

Post by mhc » Wed Jul 09, 2014 3:32 pm

Wait until you lose a years salary in a month, or a week, or a day. That really demands an adjustment to your thinking. :twisted:

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Re: How I look at $ in the real world vs my retirement accou

Post by White Coat Investor » Wed Jul 09, 2014 3:39 pm

Better to learn how it feels to lose money when your portfolio is small. I'd only been investing a few years in 2008 but still lost nearly 6 figures. That's the price of being an equity investor.
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Re: How I look at $ in the real world vs my retirement accou

Post by Meg77 » Wed Jul 09, 2014 3:39 pm

That is very interesting. I think you just become accustomed to looking at investment accounts differently as you get into the habit of investing. It's true it's almost like it isn't "real" money. You kind of have to compartmentalize it. But the beauty of it is when the account balance goes UP more than you made that day or week or month. Console yourself with those days. :)

Yesterday I told my husband casually "oh, we lost another $3700 in the markets today; we are down over $7K in two days." He smiled and went about his business. But if I told him I spent $7,000 on some clothes - or lost a $7,000 cashiers check - I bet I'd have gotten a different reaction!! Even though the impact to our net worth would be the same.

I sometimes acknowledge to myself that I may overall lose money in the market over my investing life (as unlikely as that hopefully is), but at least I'm doing "what I'm supposed to" in order to prepare myself for retirement. If I never save, I'll for sure end up destitute. If I save like I should over the course of my life, I'll probably end up rich and financially liberated from the shackles of any potential job or relationship or housing situation. If I do lose it all in an epic market collapse just prior to my retirement, then at least I gave it a shot - plus I'll probably have plenty of company and lots bigger problems than money given what would probably be going on in the world.
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Re: How I look at $ in the real world vs my retirement accou

Post by Crow Hunter » Wed Jul 09, 2014 3:44 pm

Don't forget, you haven't "lost" anything until you sell.

You aren't at your destination until you get off the bus. Just because the bus goes into a part of town you don't want to be in doesn't mean you have to get off there. :D

In the mean time, just keep playing Candy Crush on your phone until you actually get to your stop.

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Re: How I look at $ in the real world vs my retirement accou

Post by midareff » Wed Jul 09, 2014 3:46 pm

It's a market, it goes up and it goes down. That's what markets do. You will eventually get used to the ups and downs..... at least the moderate ones. The ones where you watch a half mil or more evaporate over 8 to 10 months are a little harder to look at as an opportunity, which is what they are.

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Abe
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Re: How I look at $ in the real world vs my retirement accou

Post by Abe » Wed Jul 09, 2014 3:47 pm

We expect that money invested will be more money later, otherwise there is no reason to do it. We also accept that this money will fluctuate in value along the way. So we haven't really lost anything; it's just part of the price we pay to have more later.

Money spent on something we consume is money that will never work for us again. It will never be a slave to work for us. Algamish said, "You do eat the children of your savings. ... First get thee an army of golden slaves and then many a rich banquet may you enjoy. :beer
Slow and steady wins the race.

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coachz
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Re: How I look at $ in the real world vs my retirement accou

Post by coachz » Wed Jul 09, 2014 3:59 pm

Pay off the mortgage and ignore the Vanguard lady.

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Re: How I look at $ in the real world vs my retirement accou

Post by ralph124cf » Wed Jul 09, 2014 4:28 pm

coachz wrote:Pay off the mortgage and ignore the Vanguard lady.


Depends. What interest rate? What tax bracket? How important is safety? What age?

Ralph

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tyrion
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Re: How I look at $ in the real world vs my retirement accou

Post by tyrion » Wed Jul 09, 2014 4:33 pm

Market fluctuation is going to happen. You need to learn to ignore it. Saving $4 by not buying a latte or whatever is still worth it. After a few years of investing your daily fluctuations will be in the thousands or tens of thousands of dollars range. If you let the magnitude of those swings influence your daily life it's going to drive you crazy. One day you'll be buying steak dinners, the next you won't be able to afford to eat anything at all.

So ignore the noise. Delete your investing accounts from Mint if that's what you need to do. Check them quarterly or yearly. Or learn to accept big fluctuations.

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Re: How I look at $ in the real world vs my retirement accou

Post by Professor Emeritus » Wed Jul 09, 2014 4:37 pm

[quote="physicsgal"] I had a realization that I lost $4 already./quote]

You've got to know when to hold 'em, know when to fold 'em,
Know when to walk away, know when to run.
You never count your money when you're sittin' at the table,
There'll be time enough for countin' when the dealin's done.

Think of it as Schrödinger's investment fund. Until you take the money out you just don't know !!

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Re: How I look at $ in the real world vs my retirement accou

Post by Abe » Wed Jul 09, 2014 4:38 pm

It is interesting. A different slant on money depending on the circumstance. If you have ever been in a casino, you tend to get a distorted view of money. The casinos work hard to make it that way. They give you chips in place of money. You're not losing real money; it's only chips. Sort of reminds me of credit cards.
Slow and steady wins the race.

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Re: How I look at $ in the real world vs my retirement accou

Post by MnD » Wed Jul 09, 2014 4:51 pm

I was down around $350,000 in 2008 through early 2009.
If being down $4 in real life or in the market bothers you, you may be in for a rough ride down the road. :mrgreen:

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Re: How I look at $ in the real world vs my retirement accou

Post by pjstack » Wed Jul 09, 2014 5:09 pm

Crow Hunter wrote:Don't forget, you haven't "lost" anything until you sell.

You aren't at your destination until you get off the bus. Just because the bus goes into a part of town you don't want to be in doesn't mean you have to get off there. :D

In the mean time, just keep playing Candy Crush on your phone until you actually get to your stop.


I really like that analogy! I'll have to keep it in mind when the next "panic time" hits.
pjstack

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celia
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Re: How I look at $ in the real world vs my retirement accou

Post by celia » Wed Jul 09, 2014 5:36 pm

Meg77 wrote:Yesterday I told my husband casually "oh, we lost another $3700 in the markets today; we are down over $7K in two days." He smiled and went about his business. But if I told him I spent $7,000 on some clothes - or lost a $7,000 cashiers check - I bet I'd have gotten a different reaction!! Even though the impact to our net worth would be the same.

The stock market "loss" is a paper loss which may or may not be there when you actually sell.
The purchase is not a loss but a "conversion".
The loss of a cashier's check--now that's a loss! This is the only one of the 3 examples that changes your net worth (unless you calculate your net worth daily).

physicsgal,
Of course, there are different ways of looking at your accounts. Most obviously, if you are a custodian or trustee on an account, your job is to do what is best for the beneficiary/trust. If you have a separate account for a savings goal (say, a house or a vacation), you may look at those differently as the money is not needed immediately. But the cash in your pockets or checking account is probably subject to immediate needs, whatever they are. If you usually take your lunch to work and one day you forget it, would you mind suddenly having to spend $4 for a lunch that you weren't planning on?

P.S. I doubt that you really have a "Vanguard lady" where you work. Do you work for Vanguard? Then all you ladies would be "Vanguard ladies"!
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: How I look at $ in the real world vs my retirement accou

Post by placeholder » Wed Jul 09, 2014 5:42 pm

coachz wrote:Pay off the mortgage and ignore the Vanguard lady.

Exact opposite for me (well not exactly I don't mean "ignore the mortgage and pay the Vanguard lady).

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Re: How I look at $ in the real world vs my retirement accou

Post by IlliniDave » Wed Jul 09, 2014 6:03 pm

physicsgal wrote:I've just started a new additional investment from my paycheck to add $500 into a 403b during each pay period. The Vanguard lady at my work that I met with convinced me this is a better use of my money then paying extra on my mortgage, which you may or may not agree with but I'm convinced now it's right for me. Anyways, since it's the first month that the money went into my 403b that meant that today, when I opened up Mint and saw that my balance is now ~$496 I had a realization that I lost $4 already. Of course, in the long run I will end up with much more than that. But it made me think about how differently I contextualize money in my retirement accounts vs money that I use in the real world.


Anyone else feel this way? This must be really weird for people who are actually retired and spending from their retirement accounts. Then that $4 you lose is the same $4 that you would have spent, they aren't even separated by the boxes of "Roth IRA" vs "checking account" so much. This is part of why I never ended up taking $ out of my Roth for the solar panels I bought on loan. I didn't want to "taint" the way I look at my Roth money and think of it more like "real" money. Anyone else have thoughts on this? Do you think of your retirement money differently from "real" money?


I really don't think of my retirement accounts as money, just numbers, so except for extreme circumstances, I never have an emotional sense of loss on down days. I've been reasonably frugal over the last stretch of years, but I've never made that comparison between losses and cash flow expenses. It's not unusual for my account value to go down by a month or two of total expenses in a single day, so that's probably a good thing.

It will probably feel strange to start spending out of that money. I've gone to great lengths to accumulate it and keep it set aside. Maybe losses will sting worse then.
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Re: How I look at $ in the real world vs my retirement accou

Post by MoonOrb » Wed Jul 09, 2014 6:56 pm

I think the reason it's so easy to think differently about money in retirement accounts vs. money spent "in the real world" is simply because fluctuations in retirement accounts do not represent money that is gone. They're just fluctuations: we still have the same number of shares that we did yesterday. Some days those shares are worth more, some days less, but in the long term they'll be worth more.

When we actually spend money on something, that money is gone, and all we have is whatever we purchased with it, something that is probably not going to increase in value over the long-term.

physicsgal
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Re: How I look at $ in the real world vs my retirement accou

Post by physicsgal » Wed Jul 09, 2014 9:12 pm

celia wrote:P.S. I doubt that you really have a "Vanguard lady" where you work. Do you work for Vanguard? Then all you ladies would be "Vanguard ladies"!


I work for a Uni. My work arranged some financial checkup with the various retirement plan companies where we could make an appointment and show them where we are and get tips. She basically told me to save more of an Efund, which I knew I needed to work on, and then to contribute to the 403b (on top of 15% going into 401a plus I max out my Roth and my HSA).

ralph124cf wrote:
coachz wrote:Pay off the mortgage and ignore the Vanguard lady.


Depends. What interest rate? What tax bracket? How important is safety? What age?

Ralph


I used this calculator to help me decide after talking to her http://www.planningtips.com/cgi-bin/prepay_v_invest.pl. Check it out if you haven't. Because it's pre tax I don't have to make that much in the market for it to come out ahead. Plus, I worry a little about inflation in the long term with all the QE stuff lately plus the national debt and all (I'm not trying to be political and I'm not sure exactly the rules regarding that around here, but our money is controlled by the fed so their actions really affect our financial lives), so I figure a fixed rate mortgage is a good hedge and I might as well keep it, especially while the interest is still tax deductible over and above the standard deduction. Once I can't deduct and save $ over the SD, then I may change my plan. Unless the market happens to be way down, in which case, I'll keep shoveling money in until people stop thinking the sky if falling. When everyone thinks the sky is falling, that's the best time to invest extra.


Abe wrote:We expect that money invested will be more money later, otherwise there is no reason to do it. We also accept that this money will fluctuate in value along the way. So we haven't really lost anything; it's just part of the price we pay to have more later.
mhc wrote:Wait until you lose a years salary in a month, or a week, or a day. That really demands an adjustment to your thinking. :twisted:


I wasn't really bothered by the $4 lost in the market, that's why I thought it was weird. If I lost $4 in the real world I would have been upset, if only a little. Yes, I'm curious to see how I respond to this next market down, whenever it comes, as it inevitably will eventually. That's why I keep reading BH material even though at this point I know enough and I don't even really use most of what I know because I'm really only using a TR fund so far. Someday when my accounts are big enough maybe I'll switch to 3-fund when I can qualify for admiral shares. Yay, lower fees! Until then, I will keep BH on my bookmarks and come here when the sky starts falling so you guys can remind me that it just means that stocks are on sale.

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Re: How I look at $ in the real world vs my retirement accou

Post by GerryL » Wed Jul 09, 2014 9:33 pm

I just earned my final paycheck (waiting for it to arrive tomorrow) and am moving into my spend-down phase. After years of reviewing my accounts 3-4 times a month, I've gotten myself to the view that "money" is what is in my checking and savings accounts. Cash. That is to say, until I pull something out of a fund (or stock) it is still "just paper." I've started diverting dividends from taxable accounts to savings instead to reinvesting them, so growth will slow, but I can avoid worrying about down weeks in the market and focus on what I can control -- how I spend my cash. [At least, this is the way I am viewing it now. We'll see how it goes as I get deeper into retirement.]

dbr
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Re: How I look at $ in the real world vs my retirement accou

Post by dbr » Wed Jul 09, 2014 9:46 pm

It might be helpful to contemplate what one should do with one's investment money if one is not going to put that money in a market where the value fluctuates. Along the way, one should also do the arithmetic in real dollars so that one does make the mistake of thinking that the value of currency in pocket or money in savings and checking accounts is not fluctuating in value, downward mostly since inflation is almost always positive.

It is, by the way, possible to change from an asset of fluctuating value to an income stream that does not fluctuate in real value either by buying an inflation indexed SPIA or by setting up and then liquidating a TIPS ladder. Of course, the latter does have one big fluctuation which is the shift to zero income at the end of the ladder.

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Re: How I look at $ in the real world vs my retirement accou

Post by DonCamillo » Wed Jul 09, 2014 10:48 pm

My son started saving the maximum amount in his 401k in 2000. He was lucky enough to get really clobbered in 2000, 2001, 2002, 2008 and 2009. Why was that lucky? Because he kept investing the maximum and got the chance to buy more stock with the same amount of money when the price was lower. When I am buying stock, I want the price to be low.

My wife was vested in her company retirement plan in 1982 after working less than 2 years in return for agreeing to stay with the company until it closed down. She left with $4,140 in the account. She converted it to an IRA and ignored it until she retired in 2012. At that time, it was $77,000.
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Re: How I look at $ in the real world vs my retirement accou

Post by donall » Wed Jul 09, 2014 11:49 pm

If you fret over a paper loss, then try not to look at your account daily, because there will be days that the account value will go down. Check monthly or even less often. After a few years you will have made money on dividends and capital gains, so a paper loss may be less noticeable if the decrease is small.

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Re: How I look at $ in the real world vs my retirement accou

Post by grayfox » Thu Jul 10, 2014 12:42 am

physicsgal wrote:I've just started a new additional investment from my paycheck to add $500 into a 403b during each pay period. The Vanguard lady at my work that I met with convinced me this is a better use of my money then paying extra on my mortgage, which you may or may not agree with but I'm convinced now it's right for me. Anyways, since it's the first month that the money went into my 403b that meant that today, when I opened up Mint and saw that my balance is now ~$496 I had a realization that I lost $4 already. Of course, in the long run I will end up with much more than that. But it made me think about how differently I contextualize money in my retirement accounts vs money that I use in the real world.

<snip>


Good topic to bring up.

I think you are on the right track in your thinking but not far enough. Unless you have all cash in your IRA, nobody has "money" in their retirement account. Most people own shares of a mutual fund or ETF. This is not money. The money has been converted to ownership, a.k.a. equity. Now the market will give you the current liquidation price of your shares, but that price is irrelevant if you are not selling right now. You probably would not even get that same price if you sold your mutual fund at the end of the today, because the current price will be "stale" by the end of the day. Tomorrow will be a different price, and the next day, next week, next year.

Suppose that you plan to fund your retirement by selling all your shares at age 67 and purchasing an annuity. The only price that matters is the price at the exact moment that your sell transaction is executed, which may be 20 or 30 years from now.

:arrow: Accountants like to take every asset that you own--cash, bonds, stocks, gold, house, appliances, car, coin collection, fine art, beanie babies, clothes, etc.-- and add them up to find your net assets. To add them, the units have to be the same, so they make a guess at the dollar value of every asset. But this is fictitious number.

:?: Example: You have two apples and three oranges. What is the total value of those assets?

You can't add apples plus oranges. The units have to be the same. What do you have, five fruits? So accountants convert everything to dollar value and add them up. Your accountant chooses some prices and tells you your assets are worth $4.27, maybe the prices you paid at the supermarket, or the current selling prices for apples and oranges at Safeway.

The actual dollar value can only be known by converting the fruit to cash, i.e. selling. But nobody is going to pay you money for the fruit in your fruit bowl, so the $4.27 number the accountant tells you is really a fiction. A useful fiction, but nevertheless a fiction. You actually have no dollars. The only correct statement is that your assets equals 2 apples + 3 oranges.

:idea: You really can't say what the dollar value of your assets are without liquidating them. So that $496 was not even the true value of your of account when you looked. It was just an estimate of what you might have got by liquidating everything.
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Re: How I look at $ in the real world vs my retirement accou

Post by telemark » Thu Jul 10, 2014 3:34 am

The title says it all. You don't actually have $ in your retirement accounts, you have shares in various funds. Do you have your house appraised every day to see how its value has changed?

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Re: How I look at $ in the real world vs my retirement accou

Post by user5027 » Thu Jul 10, 2014 6:50 am

My wife has always referred to the retirement funds as "funny money."

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Re: How I look at $ in the real world vs my retirement accou

Post by ks289 » Thu Jul 10, 2014 7:08 am

When I look at balances in retirement accounts (to rebalance/funnel new money) the balances clearly (slightly) affect my spending habits.
When losses exceed new contributions (in late 2008/early 2009) it is harder for me to want to splurge on eating out as much.
When gains exceed new contributions (last 2 years) it is harder to resist a little extra spending now and then.
This is what I imagine retirees report about having safe withdrawal rates but also being able to adjust spending when needed.

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Re: How I look at $ in the real world vs my retirement accou

Post by Dandy » Thu Jul 10, 2014 7:18 am

Advancing age and size of the equity exposure gradually make the risk more real. As you noted dismissing $4 on a $500 investment at (I assume) a young age is easy. It is a small amount and 8/10th of a percent. Even a 20% drop would seem "mild". At age 58 and a $500k equity exposure and the 20% drop is $100k and you were planning on retiring next year is a whole different ballgame.

There is no difference at that point with "play" money in an IRA and real money from a paycheck. Most likely that person won't have enough working time to replace the lost $100k and now has a significant dent in his retirement plans. A similar loss for someone younger can be discouraging as it might take several years of contributions to make up the $100k that was lost in a relatively short time. To me you don't know your real risk tolerance until you experience a whopping loss.

That being said - long term money that is "untouchable" seems like play money especially vs money you need to manage day to day.

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Re: How I look at $ in the real world vs my retirement accou

Post by dbr » Thu Jul 10, 2014 7:33 am

The comment that equities are not money is exactly right. However, I am not sure that helps a person with the idea that they have exchanged actual money for equities and now don't know what they will get back.

Part of the answer lies in the fact that a capitalist economy offers the opportunity of gaining wealth by foregoing consumption to invest. With that opportunity comes the risk of not getting the gains expected. That risk isn't eventual -- might or might not happen -- it is in process every minute of every day. Everyone with the opportunity has a chance to make the choice of whether or not and to what degree to take that opportunity. That is the essence of much that is discussed here.

There is an alternative of eschewing the opportunity. One can place all of ones savings in places that have much less risk, even little or effectively no risk. But, life is not that simple. If you want to avoid investment risk, then you are also opting for the risk that your savings will not be sufficient to provide the income you want in retirement. There is no "safe" course, just a path through obstacles.

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Re: How I look at $ in the real world vs my retirement accou

Post by kaudrey » Thu Jul 10, 2014 7:43 am

Yes, it is definitely different - you are not alone!

The last two months, we have been spending quite a bit more than normal, for a variety of reasons. Therefore, our checking account is the lowest its been in about 3 years. Earlier this week, I said to my husband, "we have to stop spending so much, we are broke"! He kind of rolled his eyes at me, because 1) we still have been saving as planned (because we always "pay ourselves first"; it is just that I like to "beat" our savings goals and save more), and 2) our portolio is quite large. We are nowhere near broke; I just don't think of the investment portfolio as money we can touch.

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Re: How I look at $ in the real world vs my retirement accou

Post by Longtimelurker » Thu Jul 10, 2014 7:45 am

This is the reason I track two AA. The first is my master AA, and is 75/25. The second is a sub set and is calculated using investments that are liquid, accessible without penalty, and do not decrease my retirement balances. These funds are currently 35/65, with a max of 50/50. This second category could be accessed as life evolves. Need to buy a home? These are the funds. Car? These are the funds. This pool is growing ever deeper, and lets me sleep great at night. i am 35.
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Re: How I look at $ in the real world vs my retirement accou

Post by Faith20879 » Thu Jul 10, 2014 8:29 am

No you are not alone and yes I also agree that they are different.

I've had this discovery about myself some time ago. That we could lose thousands in the market in one day without blinking of an eye yet we decide to hold off buying something that costs a few dollars until tomorrow because it’ll be on sale then.

I know you are not particularly addressing the feeling of losing $4 per se. For consolation, try thinking about it this way. Now you have the shares. Eventually the market will come back and your shares will still be there.

Faith

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Re: How I look at $ in the real world vs my retirement accou

Post by fposte » Thu Jul 10, 2014 9:04 am

I would argue that another way it's different is that you didn't lose $4 at all. If you have jewelry, you don't lose money just because gold or silver dropped. It's a change in valuation.

Sure, it's a valuation that's quickly convertible to a cash equivalent, but the reason it's an investment is because it isn't money.

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Re: How I look at $ in the real world vs my retirement accou

Post by an_asker » Thu Jul 10, 2014 12:04 pm

It is all a matter of perspective. It is weird how I react to a fluctuation of $10 in the prices of, say, clothing or groceries when, comparatively, if I pay $100 for a car repair bill, it appears like I came away a winner. Just ask VictoriaF who recently rejigged her car ;-)

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Re: How I look at $ in the real world vs my retirement accou

Post by coachz » Thu Jul 10, 2014 1:18 pm

Well I think of it like this. I paid off my mortgage a few years ago and it gave me amazing peace of mind. Now I ask myself, Would I take out a loan to invest in "whatever". The answer for me is absolutely NO.

placeholder wrote:
coachz wrote:Pay off the mortgage and ignore the Vanguard lady.

Exact opposite for me (well not exactly I don't mean "ignore the mortgage and pay the Vanguard lady).

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Re: How I look at $ in the real world vs my retirement accou

Post by Phineas J. Whoopee » Thu Jul 10, 2014 1:24 pm

I think it's worthwhile to look at three functions of money. The third I'll list, which is less well-known, has helpfully been well-alluded to in some of the responses.

Money is a medium of exchange. That's its most familiar use. It's money in a checking account or a wallet, which can immediately be traded for two apples and three oranges, or shares in two equity index funds and three fixed income index funds, or whatever. As such it solves the coincidence of wants problem.

Money is a store of value. If your boss pays you for your labor today, you can hold on to the money and buy a loaf of bread next week. That's money in a savings account, say, or in an envelope in your sock drawer. Inflation reduces the value over longer periods, so money isn't a perfect store, but in most economies most of the time it's good enough to get the job done over the short run.

Money is a unit of account. That, I think, is where the not real money, or not money in the real world, idea falls. I'm not saying such a view is wrong. I'm saying there's a well-defined concept that matches it. Poster grayfox referred to it. We say how much something is worth, but that doesn't mean it's money in a medium of exchange sense, any more than is the value of the two apples and three oranges, or the value of the shares as dbr, among others, wrote. It's a way of comparing one thing to another, but it doesn't mean the medium of exchange or store of value functions are present. I think it's what people are getting at when they say things like only a paper loss, or it isn't a real loss unless you sell.

I remember, during the housing crisis, fielding the question "if houses lost $X trillion, then who took it? Where did all that money go?" It didn't have to go anywhere, because it was never there to begin with. People were simply adding up what they thought all the housing stock could be sold for, piece by piece by patient sellers to willing buyers. Once the shock hit, those estimates declined; but somebody who owned what they thought of as a $300,000 house before, but a $150,000 house after, still had precisely the same house.

I believe it's easier to think in terms of the first two functions I listed, because that's how we ordinarily use money. When a person logs in to their brokerage account and sees a dollar value at the bottom, it doesn't mean they have that much money, as such. It means they have assets which they could probably sell for around that number if they sold immediately.

OP - does that help at all to make sense of the feelings about losses which you wrote surprised you?

PJW

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Re: How I look at $ in the real world vs my retirement accou

Post by Zabar » Thu Jul 10, 2014 2:33 pm

Meg77 wrote:Yesterday I told my husband casually "oh, we lost another $3700 in the markets today; we are down over $7K in two days." He smiled and went about his business. But if I told him I spent $7,000 on some clothes - or lost a $7,000 cashiers check - I bet I'd have gotten a different reaction!! Even though the impact to our net worth would be the same.
Actually, it's not--a picky difference, but relevant to the discussion. If you spent $7,000 on clothes, your net worth would decrease by $7000 minus the resale value of those clothes, which is likely to be quite low because of the nature of the asset. If you lost a $7,000 cashier's check, your net worth wouldn't change at all because you'd be able to recoup those funds from the bank after a period of time--probably six months--had elapsed. It would simply shift $7,000 from your cash to your accounts receivable within your assets.

Your husband and you can smile about the $7K paper loss in the market over two days because you understand the different natures of your assets. You know that your equity investments are likely to appreciate over time, while your car will depreciate. The stock-related loss is merely a blip. It's understanding those differences that many people find difficult emotionally, if not intellectually. You've mastered that; the OP is struggling with it.

Every so often, when the markets head downward, I have to remind myself how lucky I am to have daily variations in my investments that are several times what my annual savings used to be! :beer

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Re: How I look at $ in the real world vs my retirement accou

Post by placeholder » Thu Jul 10, 2014 4:51 pm

coachz wrote:Well I think of it like this. I paid off my mortgage a few years ago and it gave me amazing peace of mind. Now I ask myself, Would I take out a loan to invest in "whatever". The answer for me is absolutely NO.

I have been with and without home loans and rented at various points and it never affects my peace of mind at all plus I did take out a loan to invest a couple of years ago.

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Re: How I look at $ in the real world vs my retirement accou

Post by GerryL » Thu Jul 10, 2014 6:35 pm

Meg77 wrote:Every so often, when the markets head downward, I have to remind myself how lucky I am to have daily variations in my investments that are several times what my annual savings used to be! :beer


Yes. I sometimes marvel about weekly variations that are more than I used to make in a year. Puts things in perspective.

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Re: How I look at $ in the real world vs my retirement accou

Post by coachz » Thu Jul 10, 2014 6:42 pm

I understand we are all different. Would you care to elaborate on the loan terms, what you can invested in and the returns. My way is certainly not the only way.

placeholder wrote:
coachz wrote:Well I think of it like this. I paid off my mortgage a few years ago and it gave me amazing peace of mind. Now I ask myself, Would I take out a loan to invest in "whatever". The answer for me is absolutely NO.

I have been with and without home loans and rented at various points and it never affects my peace of mind at all plus I did take out a loan to invest a couple of years ago.

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Re: How I look at $ in the real world vs my retirement accou

Post by JW-Retired » Fri Jul 11, 2014 11:56 am

physicsgal wrote: Anyways, since it's the first month that the money went into my 403b that meant that today, when I opened up Mint and saw that my balance is now ~$496 I had a realization that I lost $4 already. Of course, in the long run I will end up with much more than that. But it made me think about how differently I contextualize money in my retirement accounts vs money that I use in the real world.
(snip)
Anyone else have thoughts on this? Do you think of your retirement money differently from "real" money?

Well it is different in that it is invested money not just spent money. You realize there could be temporary (or even some risk of permanent) losses but expect the more probable outcome is gains long term.
As you have seen, different people have different ways they adjust to temporary losses: e.g., it's not a loss until you sell or it's not money it's shares. Whatever works.

None of those things work for me. I definitely saw it as a loss of big money in 08/09 :( , but you just have to shrug it off if you want to average the higher returns of equities. Happily the loss was only temporary.
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Re: How I look at $ in the real world vs my retirement accou

Post by telemark » Fri Jul 11, 2014 2:14 pm

an_asker wrote:It is all a matter of perspective. It is weird how I react to a fluctuation of $10 in the prices of, say, clothing or groceries when, comparatively, if I pay $100 for a car repair bill, it appears like I came away a winner. Just ask VictoriaF who recently rejigged her car ;-)


Spending $100 to get a $15,000 car working again is a good ROI :)

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Re: How I look at $ in the real world vs my retirement accou

Post by amitb00 » Fri Jul 11, 2014 2:28 pm

I don't bother about my investment accounts fluctuations - whether retirement, taxable or even metal ETFs. I generally keep on buying and rarely sell.

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Re: How I look at $ in the real world vs my retirement accou

Post by DonCamillo » Sat Jul 12, 2014 5:48 am

Phineas J. Whoopee wrote:Money is a medium of exchange. That's its most familiar use.

Money is a store of value. If your boss pays you for your labor today, you can hold on to the money and buy a loaf of bread next week.

Money is a unit of account. That, I think, is where the not real money, or not money in the real world, idea falls.

There are a number of quotes along the lines of "If you know how much money you have, you don't have much." For example, Paul Getty said; "If you can count your money, you don't have a billion dollars." After we have been saving for a lifetime, it gets hard to place a number on your income or your assets.

Here is an example: I have $500,000 in a tax deferred account at the beginning of the year. I take out $20,000 for a minimum required distribution. My state (NJ) taxes only the increase in a tax deferred account, so my state taxable income is $10,000. At the end of the year, my account is worth $550,000. What was my income for the year?

What is the answer to that question if my account is worth $450,000 at the end of the year?

And since some of the money in my account must be paid to the federal government in taxes, while more of it much be paid to the state, it is not worth the same amount as money in a taxable account or a Roth account. So how much money do I have?
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Re: How I look at $ in the real world vs my retirement accou

Post by willift » Sat Jul 12, 2014 7:07 am

physicsgal wrote: Anyone else feel this way?
The Vanguard lady at my work that I met with convinced me


I share your feelings/thinking on the different account value changes.

I would remind you that this 'Vanguard Lady" probably doesn't have a fiduciary obligation to you.
She most likely would never convince anyone to pay off their mortgage vs. invest in Vanguard.

Nothing against Vanguard I'm Flagship over there but lately I've been more cautious of free advice.

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Re: How I look at $ in the real world vs my retirement accou

Post by Phineas J. Whoopee » Mon Aug 25, 2014 4:50 pm

Sorry to resurrect, but thanks Don. All too often we abrogate understanding in deference to something the government defines, for example, taxable income, as if that were all there were to the concept of income. You've brilliantly illustrated the difficulty some people have with respect to thinking about money in its unit of account sense.
PJW

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Re: How I look at $ in the real world vs my retirement accou

Post by ArthurO » Mon Aug 25, 2014 4:57 pm

Crow Hunter wrote:Don't forget, you haven't "lost" anything until you sell.

You aren't at your destination until you get off the bus. Just because the bus goes into a part of town you don't want to be in doesn't mean you have to get off there. :D

In the mean time, just keep playing Candy Crush on your phone until you actually get to your stop.


of course he lost money, he just didn't realize his losses, OP needs to be careful in his thinking, it is easy to justify loss of whatever amount in the investment account as market fluctuation, and it is much tougher to stomach not spending or saving the same amount in real life, the penny pinching attitude is good to certain extent but only if it doesn't interfere with small pleasures of life.

Remember, as your account grows you will lose 1000s in one day and you should be OK with it, the only way you will be is if sometimes you spend 1000s, splurge and enjoy, so you will not have regrets seeing the net worth drop, regret that you could have bought this or that but chose not to, chose to invest the money instead and now it is gone.

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Re: How I look at $ in the real world vs my retirement accou

Post by technovelist » Mon Aug 25, 2014 5:19 pm

If I had a dollar for every dollar I have, I wouldn't have very many dollars.
I do have quite a bit in assets, though. :mrgreen:
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Re: How I look at $ in the real world vs my retirement accou

Post by jojay » Mon Aug 25, 2014 6:48 pm

Hi,
Right now, your retirement money is not "real" - it's only paper. Would you feel richer if it said $504 instead?

You do pose an interesting question though about looking at it while in retirement. For a different perspective, $4 lost to me while I am working is not a big deal because I know I can make up that $4 over the next several years until retirement. I'm not sure I'd feel the same way in retirement.

That said, if you are in the market, you should expect fluctuations. That is what the market is all about, right?

Lastly, $4 used to bug me. If I could have purchased something for $4 less than what I paid, it would get to me. It was a long time ago but I remember that it used to take me 3 hours of work to clear $4. Just a few years ago in my mid fifties did I learn to relax about that. I raised my thresh hold. $4 is no longer the teetering point.

I wonder though if it will when I retire though.

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