We pick the mix of investments that maximizes the expected returns while not exceeding a fixed maximum risk. In the past month, we’ve made a little bit of money while each of the three stock funds has lost about 10 percent. In a single month. Despite the recently publicized “rally”. Stocks have moved up a little in the past few days, resulting in yet another call for a bottom. Meanwhile, we’ve continued to preserve our retirement savings by staying out of stocks.
Bonds have become too risky for us as well. Not stocks. Not bonds. We are left with a single option — the money market.
Question. I am confused about the use of the terrm “shares” within TSP literature. As stock prices drop, I often hear people say that their TSP losses are merely “paper losses” because they are accumulating shares. Is this correct?
Response. What a great question. There is so much confusion on this issue. So many people that I talk with tell me that their losses are just “paper losses”. That’s simply not true. All losses and all gains are real.
That’s the short answer to your question. If you’ve made X% today or lost Y% today, that’s a real gain or loss, whether or not you still have your money in the original funds. Even if you have not moved your money, the gain or loss is real.
What do the number of shares have to do with this? Nothing. Many investors are mislead intro believing that because of something to do with the number of shares, their losses are not as bad, or maybe even good. The number of shares that you own is irrelevant. 100 shares at $10 each is the same as 10 shares at $100 each or one share at $1000.
The number of shares is irrelevant. What is relevant is the number of shares times the price per share, and the change in that figure, which is just the return. What is relevant is the return, not the number of shares.
That’s why I’ve been writing for months on end now that people should get out of the stock funds. But many people are scared. They are being told that if they get out now, they will “lock in” their losses. That’s just not true. Your losses (and gains) are locked in every single day, whether or not you move your money.
We pick the mix of investments that maximizes the expected returns while not exceeding a fixed maximum risk. In the past month, we’ve made a little bit of money while each of the three stock funds has lost about 10 percent. (That’s in a single month!) Until early this month, many people were, once again, calling for a bottom in stocks. By sticking with bonds and the money market, we’ve continued to preserve our retirement savings.
Bonds remain a little shaky, but with good potential. That’s why we are holding some of our money in the money market and some in bonds.
