Where Did All the Money Go?

I just received the October statement for our investment, brokerage and retirement accounts, and for the second consecutive month it's taken a serious nose dive. Not the direction I like to see my savings go. We live well within our means, contribute the maximum allowable amount to our SEP plans (the self-employed equivalent of a 401k), and make monthly automatic payments to my investment savings. And in the days since the current financial meltdown began, I've lost a LOT of money.

I don't like to talk about my finances. It's something I keep pretty personal. So I won't get too specific. But let's just say, it will take me three to four years of working and contributing to my investments as I have in the past to make up for the losses I have experienced in the last two months. And that's only if the market recovers from its tailspin very soon.

So, like many in America, I've been asking, "Where did all the money go?" If my money was there in August, who has it now?

Then I read this article titled "Where did all the money go?" and I finally grasped a very important lesson in finances. In fact, you could call it a rude awakening.

In the article, Robert Shiller, an economist at Yale explains that the price of a stock has never been the same thing as money -- it's simply the "best guess" of what the stock is worth.

"It's in people's minds," Shiller says. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today -- who are very, very few people -- are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."

In other words, I took my money -- real, hard, hard-earned money -- and bought something that I (and many others) thought was worth something, at the price we/they believed that something was worth at the time. Only now, that something I bought isn't worth what I paid for it.

It's as if I bought a high-priced house in a neighborhood that then went bad and the value of that house declined. I can wait it out and see if the neighborhood improves, something that may or may not happen in my lifetime. Or I can cut my losses and get out now -- before the neighborhood gets any worse and the value of my house plummets even further.

But the lesson I've learned, the rude awakening I've experienced, is more than a lesson in economics.

I'm learning that nothing really has changed. Just my value on paper. Just the vision I had of retiring three or four years earlier than I likely will. Just the false feeling of security I got with each monthly statement.

But nothing else has changed really. Not who I am. Not how people see me. Not who my friends are or the way my family feels toward me.

So what will I do differently? I won't stop saving or investing -- just maybe invest in safer, less risky options. And I may invest less and live more. Instead of investing in the future -- my future -- perhaps I will invest more in the present -- and in others.

Reminder to self:

"Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also." -- Matthew 6:18-21