My wife's favorite cliche: It's all relative

When the shit hits the fan...

If you are getting depressed thinking about how hard it was to accumulate money to invest, and how easy it seems to disappear as the markets tank; consider this posture and avoid some suffering. This of course assumes you are an investor and not a trader - big difference.

When you entered the market, you bought shares in something. For the sake of clarity, let's say that the market is the market. You bought index funds. So you bought a number of shares - let's call them chips (C) for dollars(D). The number of chips you bought represented a share (a mighty slim one mind you) or a percentage of all values, expectations and things. Sure, the total market is a moving target and things come and go, but essentially you bought a slice of whatever it is.

At the instant you made your purchase (investment), your shares were worth exactly what you paid for them. Let's say your D = $1, and the market (values, expectations and things) is 1,000,000. As an example (your actual share of all equities is significantly smaller, but we'll use this example to conserve ink on zeros and give a better illustration), you now own 1/1,000,000 of everything. Sweet!

D = $1
C= 1
M = 1,000,000

$1=1/1,000,000

The markets advance over time and you can consider what if - you don't do it, but you calculate how many dollars you would have if you cashed in your chips. Your D is indeed greater than where it was when you started. Let's say the markets have advanced 15%. The number of chips remain the same, but if you did cash in, you would have more D.

$1.15 = 1.15/1,150,000

So then... the markets (all values, expectations and things) goes down from there, let's say 26%. Wooaaa! Kill me now. I'm ruined! Sell the children! No more dessert for us. After the sell-off, if you accept that the ratio of your chips to the market (all values, expectations and things) is still the same, consider:

$.85 = 1/850,000

My point is that you're in no better or worse shape than you were when you bought the stuff to begin with, so there is no need to panic - none. Unless of course you need the money now, or soon. In that case, your timing is terrible and yes you have a problem.

The problem though is that you'll be moving your chips from one market to another. You'll go from the market for all values, expectations and things, to the market for cash. Which - had you been in all along would have (as it turns out) been a better choice. While in some ways, everything has connections - markets for different things do move independently. So this fact renders the statement "everything is relative" to be less accurate than suggested.

Right this minute however, would not be the time to lose sight of the fact that your slice of all values, expectations and things is still the same.

This material is not to be considered advice. TenBucksWorth assumes no responsibility for the fact that we have way-oversimplified a complex situation - to the point of obscurity. No - instead, we suggest that you consult Oprah before having any real thoughts of your own.