Date: Sat, 5 Feb 2005 14:21:59 CST
From: "John A. Weeks III" 
Newsgroups: misc.invest.financial-plan
Subject: Re: my inheritance & ubs funds
	iQBVAwUAQgUq5/l/I4+O31e5AQH/tAH7BTtUgoY0XuWwodoUUDP0kbZqtGGVawez
	nwwksnNPrHW328SxxOaMmlJUoXweGuAkgDmw1Rf7PNbGDwpft+VLaw==
	=molw

In article <4204F3A7.30201@paragondynamics.com>,
 Will Trice  wrote:

> John A. Weeks III wrote:
> > In article <42039527.4000403@paragondynamics.com>,
> >  Will Trice  wrote:
> > 
> > 
> >>Instead, I invest in equities.  The Wilshire 
> >>5000 is up ~17% annualized since then (my portfolio has realized a much 
> >>higher gain than this).  So far, my decision has been correct, because 
> >>the market had already turned up.
> > 
> > 
> > You really cannot make the statement that you were correct.
> > The reason is that you do not know the outcome yet.  Sure,
> > if you cash out your account today, you come out ahead.  But
> > you have to die to do it.  
> 
> I don't understand this.  I could cash out today by selling my house and 
>   the securities in my brokerage account.  I could even cash out my 
> retirement accounts, pay the 10% penalty, and still be ahead (though I 
> wouldn't do this).  Then I could start all over with a new decision to 
> buy a house and/or invest.  Why do I have to die?

Until you cash out the stock, it is a paper gain.  You
have to pull the money out and spend it in order to realize
the gain.  If you don't spend it, then you might reinvest it.
If you reinvest, the market could go right back down, and all
of your paper gains will be wiped out.  That is why you have
to die--so you don't risk reinvesting.

> "Your time horizon" must be relatively short (and arbitrary).  Over my 
> time horizon, the market has gone up, and it sure looks like it's been 
> going up lately (almost two years).

You see, that is not a long enough time horizon to make a
generalization.  I think you may be like the old 49'ers who
had gold fever, and saw gold everywhere.  You have seen exactly
one up period and no down periods.  That lulls people into a
sense of invincibility where they think it will always go up.
Well, it doesn't.  The fact of the matter is that the recent
up period is an illusion.  It is exactly canceled out by a
mirror-image drop in the market before that.  The only people
who get this gain are those who got in on a particular date,
then got out on a particular date, and never invest again.

In general, this is called speculation.  Investment is when
you are in for the long haul.  Over the long haul, we are
in a period right now of mirror image ups and downs.  Pundits
call this "going sideways".  Many people have their money 
sitting on the sidelines.  I have some myself that is sitting
on the side.  We are all waiting for the market climate and
economy as a whole to perk up, and to see the market break
out of the sideways doldrums and take a turn upward.

> The market also provides 
> opportunity for diversification, instead of putting all my dollars in 
> one basket - my house

This is a mistaken idea.  Your primary house is not an investment.
It is shelter.  It is required for life.  If you lose your stock
market investment, you have made a boo-boo.  If you lose your
house, you freeze your butt off (at least here in Minnesota).
Paying down your primary house mortgage is always a good idea
in that it reduces the risk of losing your house, which would
be a disaster for your family.

-john-

-- 
======================================================================
John A. Weeks III           952-432-2708            john@johnweeks.com
Newave Communications                         http://www.johnweeks.com
======================================================================