I do take a very long term view on my investment. But of course, the problem is that there is no way to know that you are right, only until years/decades have passed.

You can call the (potential) losses just paper losses. I simply always mark-to-market. Mark-to-market makes myself to face the cold hard truth. Sometimes, it’s not pretty, but I would rather face the truth. I simply make myself always financially accountable to all the investment decisions. If today, my portfolio drop by 20% or drop by $100K, then that’s how it is. For the future performance, it’s another story whether I still believe in my investment for years to come or not.

The bottomline is that I MUST always constantly re-evaluate what I invest, checking on the health of my stocks, whether on a daily or monthly or quaterly basis.

My anxiety definitely comes from the potential down swing that I am seeing. And therefore, I balance the potential volatility by a higher than normal cash holding currently.

My current investment is certainly in the sectors that I think will be out-performing the general market. However, higher potential rewards always come with higher risks. In any case, I am putting my money in PM, oil, and cash for now. I don’t trust the stock market new highs right now.

I don’t have time now, but I will respond in more details later after the weekend is over.

Regards.

-S

First, thanks for clarifying..I did not understand, now I do, that it is a specific (but not revealed) single scaling factor that you are using..As for the rest..

Like yourself I was born in a (so called) “third world” country..and I think at least part of that, from certain parts of the world and cultures, means not taking money for granted: we realize it is not automatic, it is not a given, it is not guaranteed, that we will always have money, or even that we will always have what we need. Americans are conditioned too much to just “stimulate the economy by shopping, and not to worry”…

And of course you are right..it is scary to have the net worth drop by that much…in my case, it can drop by more than a half of a year’s salary in one month (almost a year’s salary), and for you, it is worse: it can drop by two years worth of salary (more than 2 if you count taxes)…ok..yes, that is scary, I do not deny that..

But..

Are they real losses or paper losses only? That is one of the key questions I ask myself. If I am invested mostly in broad indexes, or ETFs like EFA, IVV, IWW, IWR..etc, then, unless you believe in a permanent down-turn of the entire
US and world markets that will last for deaces and decades, then the losses are
paper losses…within 5 to at most 8 years you have more than gotten your money back…

So the only problem is if a significant percentage of your portfolio is in
high-risk, individual stock, short term (including options) and those
kinds of investments…if you keep those kinds of investments to 10% or less, and most in broad diversified markets (and in small amounts in diversified commodities like
DBE, musual funds like GASFX and so on) as well as broad real estate and bond funds and cash, then only that 10% is risking a real loss, the other 90% is temporary
“paper losses” and we can keep dollar cost averaging in..I think for you the high risk stuff is more than 10%, yes? Why not trim it down and then sleep better? You will still double your money every 7 years, roughly, as the markets grow roughly by 10% per year (plus new savings..so even more)…but much less stress..

S

Even my recent loss in my $US cash due to depreciation is quite big.

Anyway. I do hope that every reader here will one day reach this kind of anxiety. It simply means that you have accumulated quite a big amount of wealth, relative to your annual income/saving. And investing rather than saving should become increasingly more important to you. When I just started out working at my first job, I can recover ALL of my investing losses and more in one year of saving. That’s certainly no longer the case.

But if you are in it for the long term, the question is, what happens if you
invest in the broad indexes, and then see how your money is 10 years from now. Some ETFs for the broad US market (or if you must, a fund or an ETF for the value half of the stock market, those exist too if you’re of that inclination), ETF for broad foreign markets, and if you wish a broad bond and real estate fund or ETF, and for commodities, as a modest portion of your portfolio, like tracking the price of oil (USO, UCR, OIL, DBO etc) Natural gas, or some metals, in MODRATION. Now do that and in 10 and especially in 20 years when it counts, you’ll be fine, you will have saved yourself a ton of anxiety.

Sure, have 5% or 10% of “play money” for more higher-risk, higher potential return investment..and if you lose half of that you know you’re ok, and you still have an outlet for looking for special opportunities under utilized by others..

But if there’s no urgent need to retire in 4 years with much more money than you have today, why take the huge risks (which seldom pan out) and all the stress?

Same comments about the fed: if you’re a trader, short term investor, yes, a lot hinges on it, but if you’re long term buy and hold or if you are 90% LTBH and 10% play money for short-term plays, then you still don’t need to have super high stress levels about it. Some rush, sure, but not a big stressful thing.

Victor you aren’t helping him relax now are you *wink*

Sure, you can say 600k isn’t that much, but that neglects two points, the smaller point is that he can always move away somewhere cheaper in the next 5 or 10 years and his money will have grown nicely, but the housing where he choses to move can be a place which is a nice area but not as insanely high as some parts of CA.

The second point is even more critical: 600k at age 65 is one thing, 600k at age 55 is another, 600k at age 45 is pretty nice, and 600k at HIS age (mid or late 30s I think?) is way better shape..Again, Frugal, try to avoid money becoming more of a stress point than a tool for control over one’s life which it should be..

Finally a few questions for you Frugal, I know it’s not on this topic but there’s no place to post on the networth area.. in http://www.1stmillionat33.com/my-networth/
it lists about 600k

1. The percents do not add up to 100%..I assume there are sub-categories, but could you clarify those, so it’s clear how it adds up to 100%?

2. What exactly do you mean by “Both the values of portfolio and cash are scaled down by the same fixed factor so that they will look more modest.”

3. You had $1M when you were 33 (http://www.1stmillionat33.com/how-i-got-my-first-million-at-33/ ), but now you had 600k, so how much is that due to the fact that you are not counting all your assets now and being more modest, and how much is it due to some losses?

Don’t worry I’m probably more than 5 years older than you and you have more than twice the networth…so try to relax…if you put more of your money in indexes then you’ll be doubling your money every 7 years or so at 10 percent a year (on average)..if it’s 8 and half years the world doesn’t come to an end either.. Thanks in advance for your answers to the above, and for your blog.

S

We have gotten lax. On my blog (at investor geeks or http://www.devspace.com/~christianhgross/?p=466, or http://www.devspace.com/~christianhgross/?p=465) I clearly show that things are not alright. Things are not good.

If the Fed cuts further the USD will fall further and things are will slow down further. People talk about the global economy being good and thus everything will be fine. I actually think something else is going on. I actually think that there is a global syncronization. Up to now when one region does well the other region does poorly. There was a balancing because globalization has of yet not synchronized. Now I think there is a synchronization.

I think that there is a synchronization because most things are behaving strangely. The correlation between asset classes is disappearing and it tells me that people are chasing profits. If people chase profits then they are behaving irrational, and thus the time is ripe for a disruption since the correlations of past are not present.

Right now I am searching for investments and all that I can think of are bonds, and other fixed income products. My wife tells me 5% is nothing, but I say 5% is 5%, and better than loosing money. I also think something is going on since Buffett is not “bullish.” He says nice things about Asia, but follow his money trail and you get the picture. That tells me something…

So while you are crying wolf I don’t think it is totally uncalled for.

600k in California is nothing when you think about it – small houses there cost 500k so there is something to worry about.

First of all, it’s only money. Second, I agree with the first commenter, you sound stressed out in this post. I have been reading your blog regularly, and know that you are aggressive and active about your trades. I am of the diversify, buy and hold crowd. Markets are efficient, or are very so close to efficient that most of us humans can’t out-guess them. Sit down, relax, and enjoy the roller-coaster ride.

I found your blog a few weeks ago (sent you an email about http://kahvi.org for free new age music) and check in here every couple of weeks ..would like to find the time to do so more often..Anyway, you sound stressed out, and feeling a little bit like
we are all brothers/sisters on the way to financial independence, I’m a little
bit worried about you..

Are you happy at your job? Ok? Unhappy? If not happy, find another one..and if you’re happy, where’s the RUSH to make a ton of money very very fast with highly risky investments? I think it says your net worth is 600k+ and you are in your 30s..! Which means if you are NOT looking to retire in the near future, you don’t need to place any high risk bets…just making 10% per year, or 7% after inflation, let’s say, means you’ll have 2.4 million in inflation-adjusted net worth in 20 years, when you are only in your 50s, and that’s just from your current investments growing, not counting any new money you put in over the next 20 years..money is a means to an end, a tool, you have said so very well yourself..and as you said yourself, stress can be lowered by keeping high risk investments (precious metals, etc) to a small percent of portfolio.

Why not be a longterm buy and hold for most of your investments, and sure, with 10% play all you want with currencies, precious metals, etc, …you’ll still be wealthy by the time you retire..and you’ll not be so stressed out..! Anyway that’s my 2 cents..

Sav