The Curse of Pretend Money

I recently wrote a guest blog entry for the Four Pillars blog entitled The Curse of Pretend Money.

Juicy Excerpt: The reality is that your stock portfolio was never worth $1.5 million. The portfolio statement that led you to believe it was had been sent to you in January 2000, when stocks were priced at three times fair value. The real value of your stock portfolio on that day was $500,000, not $1.5 million. The extra $1 million was pretend money.

Lots of comments.

Some making solid points.

Juicy Excerpt: I don’t think there are too many places where a vacation home has dropped 70%. I think 40-50% is the max right now. And for a stock portfolio to drop 50% means it was far too heavily invested in equities, which would not make sense for someone at 60-65 with less than 5 yrs to retirement.

Some not so much.

Juicy Excerpt: Why are you so against providing some details so we can have a better understanding of your approach and a more enlightened discussion?

Some offering depressing thoughts (which may turn out to be on the mark all the same).

Juicy Excerpt: If you think that there is “something very close to zero chance” of “us ever again going to the valuation levels that applied in 1995 if we make it a practice to inform middle-class investors of what the historical data tells us about the effect of valuations on long-term returns” then you have a lot to learn about human nature. Man is an emotional beast, always has been, always will be. No explanation of “what the historical data tells us” will change that.

Some offering uplifting ones (which may turn out not to be on the mark all the same).

Juicy Excerpt: I understand that there is always going to be a dark emotional impulse within us all to invest passively. I am questioning whether it is a good idea for us as a society to direct hundreds of millions of dollars of advertising money to the job of encouraging us to give in to that dark emotional impulse….Things change for the better in this world all the time. It happens when people get sufficiently fed up about a situation to do the work it takes to bring on the change.

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