I had an interesting discussion with an advisor friend of mine the other day about client portfolios. He was of the opinion that a client (or anyone else) who doesn’t sell while the market is down–like, say, now–hasn’t really lost anything. “They still own their shares in companies, which for the most part are viable businesses; they still own their corporate bonds backed by similar companies, which are still paying dividends. So unless they have to sell today, what have they lost? If they stick it out, and let the market come back, they’ll have felt no effect at all.”
Then, of course, he went on to use the standard example: “What’s the value of your house? Has it gone down? Has that changed your life in anyway?” I had to admit that my house would probably fetch less on the market than it would have, say, a year or two ago, and that this drop in value hadn’t tangibly affected my life in any way that I could see.
Yet. But that’s not to say that I’m not affected at all. Should the financial business continue on its downward trend for some time, I can foresee having to sell my house to lower my monthly expenses. Also, the portion of my retirement that I was expecting to cover out of recouping my substantial down payment and the increased value of my house has likely declined as well. So I have indeed been affected: My present circumstances and my financial future are both far less certain than they were a few years ago. I am, in a word, living with more risk.