Dangerous thinking when watching net worth

[JoeWras]

Anyone else have this problem?

So, you monitor your net worth. Perhaps you use mint or quicken. You log on and see your "delta" for the day.

Well, over the last few years, it has been very good news most days (if you are in equities). If you are managing your own accounts for retirement (versus an annuity or pension), you may see some pretty impressive gains some days, maybe even over $10k.

This sometimes causes me to have dangerous thoughts. You know: "Ah, I can afford that toy, I just made $10k last night!"

No, no, no! Stop it! This is a very dangerous way to think, but I have to admit it slips in every now and then.

Anyone else experience this?

Now, the good (bad?) news is that there is a remedy. Today is a good day for a remedy. My NW just dropped over $10k today. Ouch! I have to remember the negative side too.

I'm not a gambler... But I think this is a glimpse into how gamblers go off the deep end.

 

[grasshopper]

Remember, lots of dividend distributions going on this week.

 

[Walt34]

I can see how that would happen (the dangerous thinking). I have a pension so not as applicable but there is more money available now than ever before in our lives.

The answer is have a plan, a budget, and stick to both. Slight deviations from time to time are not deal-killers but there is a reason one has the plan and the budget.

 

[REWahoo]

Anyone else experience this?

No, all I have to do is recall the dark days of late 2008 and early 2009. Easy come, easy go.

 

[ls99]

It is nice to se the number go up.

I find it painful to spend unless it is via craigslist, ebay, goodwill or other cheap venue to get stuff I NEED at a few cents on the dollar.

 

[robnplunder]

Not an issue for me. Been watching stock for decades and have been through many up and downs. My splurging habit don't correlate with how the stock market did today, this week, or this month.

( Just to spite a "bear" day, I may log into Ebay to buy a toy. LwellBYM has its advantages. )

 

[ERsoonihope]

My solution to the problem is this; don't put them on quicken, or mint or anywhere else. Only open every third statement you receive. Or maybe only open the statements once a year. Honestly, I do the every three month open the statement plan, and I am pretty sure it saves me from all kinds of nutty behavior.

 

[LOL!]

I am allowed one new major toy per year that costs less than or equal to the largest one-day gain in my portfolio that year. Nothing dangerous about it.

 

[heeyy_joe]

The described wealth effect is great for the economy. Go buy that toy, it's makes you a good American.

 

[gauss]

My solution to the problem is this; don't put them on quicken, or mint or anywhere else. Only open every third statement you receive. Or maybe only open the statements once a year. Honestly, I do the every three month open the statement plan, and I am pretty sure it saves me from all kinds of nutty behavior.

+1

Before I was FIREd, I use to monitor often -- often to my emotional/financial distress.

Now that I am FIREd, and have essentially made it:

1) I switched my allocation to nice balanced funds (which will automatically balance for me during market swings)

2) I only look at the balance quarterly when I prepare a balance sheet for DW showing where everything is and what it is worth.

-gauss

 

[MichaelB]

This sometimes causes me to have dangerous thoughts. You know: "Ah, I can afford that toy, I just made $10k last night!"

No, no, no! Stop it! This is a very dangerous way to think, but I have to admit it slips in every now and then.

Anyone else experience this?

No. The closest I have come is, after a very good year, to take a little extra out of the portfolio to fund home improvements.

No, all I have to do is recall the dark days of late 2008 and early 2009. Easy come, easy go.

+1

It seems to go down more easily than it goes up...

 

[retire2020]

used to happen to me but not any more. Those two crashes of 2000 and 2008 brought me back out of dream world. There were days when my NW had gone down by 90K in a day.

I still have the headline from 9/29/2008 saved in my gmail archive:

>>>>>>>>
Stocks crushed

Approximately $1.2 trillion in market value is gone after the House rejects the $700 billion bank bailout plan.

 

[Rustic23]

While my FI is largely due t Pensions and SS, we do have savings that among other things support LTC. However, we live now much like we lived getting here. We save for things we want. I don't look at what our IRA and long term saving are doing. I take out according to my withdrawal rate, and we spend or save some or all of it. So in essence we have a 'mad money' savings account. It is not dependent on what the market s doing.

 

[Nemo2]

It is nice to se the number go up.

I find it painful to spend unless it is via craigslist, ebay, goodwill or other cheap venue to get stuff I NEED at a few cents on the dollar.

+1 (Were we separated at birth?)

 

[NW-Bound]

No, all I have to do is recall the dark days of late 2008 and early 2009. Easy come, easy go.

+1

Not an issue for me. Been watching stock for decades and have been through many up and downs.

I have a diary logging the daily close of the Dow, S&P, Nasdaq, and my stash. It went back to Dec 13, 1999, when I decided to keep a permanent record.

It seems to go down more easily than it goes up...

Actually, there are more up days than down days.

However, when it goes down, it goes down a lot more than it does going up.

 

[FIREd]

According to my records, there is no strong correlation between up markets and spending for us. But there is definitely a correlation between down markets and spending.

 

[JoeWras]

OK, cool. So far, it has just been "thinking". I haven't acted yet.

This 5 years of recovery is going to my head a little. For sure, I remember 08, 09 (heck, even 87), but memory has faded a bit lately.

 

[NW-Bound]

... For sure, I remember 08, 09 (heck, even 87), but memory has faded a bit lately.

While I have longer memory than most, I am hoping that the population at large will forget, so they will keep on spending. That helps my stocks. Just today at market open, they said that home sales were up, as was consumer sentiment. Then, the market turned around because of some international bad news.

Will see what happens tomorrow.

 

[traineeinvestor]

I have a budget for "luxuries" - $X per month - and if I want something, I have to "save" for it from this budget. In theory it doesn't matter how well or how badly the investments are doing but in practice it does - when the markets are down, I tend not to spend it.

 

[ERD50]

...
This sometimes causes me to have dangerous thoughts. You know: "Ah, I can afford that toy, I just made $10k last night!"

No, no, no! Stop it! This is a very dangerous way to think, but I have to admit it slips in every now and then....

Maybe you should give in. If the market drops 50%, wouldn't it feel good to know that you have the thing you wanted, but you would have had to sell 2x the stocks to buy it after the drop? Or that it was an X% hit to portfolio then, but it would be twice the hit now?

I thought about that in the 2000 crash - I said 'heck, a nice car does not depreciate as fast as my stocks just did!'

-ERD50

 

[TOOLMAN]

I have a budget for "luxuries" - $X per month - and if I want something, I have to "save" for it from this budget. In theory it doesn't matter how well or how badly the investments are doing but in practice it does - when the markets are down, I tend not to spend it.

Our "luxury" monthly budget is a percentage of NW. (Now at 0.5% of NW / year).
This worked for us.


Sent from my iPad using Early Retirement Forum

 

[scrinch]

My solution to the problem is this; don't put them on quicken, or mint or anywhere else. Only open every third statement you receive. Or maybe only open the statements once a year. Honestly, I do the every three month open the statement plan, and I am pretty sure it saves me from all kinds of nutty behavior.

+1
I just look once a quarter to update the spreadsheet that I have been keeping for the past 20 years. When I see quarterly gains it doesn't tempt me to spend for some reason. I guess it feels like a long term gain and so doesn't impact my short term spending urges.

 

[Fermion]

I sometimes fall for this in my trading account (up 49% this year alone but that is another story).

I will sell a stock on Monday that I bought on the previous Thursday for a $1000 profit, then rebuy the same amount of shares on Tuesday for cheaper than I bought originally. I then start thinking of the $1000 as free money and stop for a latte instead of going home and brewing a pot of coffee. Bad behavior.

 

[NW-Bound]

I will sell a stock on Monday that I bought on the previous Thursday for a $1000 profit, then rebuy the same amount of shares on Tuesday for cheaper than I bought originally. I then start thinking of the $1000 as free money and stop for a latte instead of going home and brewing a pot of coffee. Bad behavior.

I do not even have that problem.

Most of my holdings are long-term, but I would make a short-term trade of $10K-50K in some volatile stocks as a wager against short-term market movements. And even when I make a $2K-3K profit in a matter of 2 or 3 days, that gain may be lost amidst the long-term holdings' movement in the opposite direction when I look at the Quicken reporting bottom line.

I often do the above to hedge for my long-term holdings, and while it is not much of a hedge, I can still console myself that instead of "losing" $100K in that market drop, I only lost $98K by playing that volatile stock and recouping $2K.

 

[W2R]

Now that I am retired, I know that I would tighten the belt if the market crashed. That would happen simply by reflex, I am sure.

The other side of the coin is to relax more about spending when the market is thriving, and sometimes this is harder to do. I have spent some time lately contemplating what I could spend a little extra money on without wasting it.

I love my new keypad entry side door, with enclosed blinds. This was a good use of money because it is practical and also makes me happy.

It is conceivable that I could go a little overboard if the perfect house became available here, and if I bought it before selling my present home. However, the chances of that happening are slim.