If the fair market value of my house goes down 10%, I don't say "I've lost $60,000 on my house this year". And if it goes up, I don't say, "I made $60k on my house this year." Because I still have exactly what I had before--a house. And that's how most people look at it.
But suddenly when it comes to equities, people get squirrelly and want to count a change in value as a loss in a way they wouldn't with a home, car, or other things they own. But the same principle applies. You have what you had the day before. When you sell, then you have something different, and that's when it makes sense co calculate what you've gained or lost.
You are correct that people can't really have it both ways. It's equally silly to say you made 4% on your mutual funds today than it is to say you lost 4% (or $40k) if you aren't actually making any transactions that lock in those prices.
Sorry but this has to be the dumbest thing I've ever read on here. Stocks are basically as liquid as the money in your checking account. By your logic, a 70 yr old with $5M in stock that they purchase 40 yrs ago for $1k is basically destitute. The correct way of looking at it is they have made $5M. They risk losing the $5M if they leave it in the market. If you don't acknowledge that they have made $5M then you have to say there is no risk in leaving the money in the market because they don't have any money anyway.
I guess you can think of it however you want. But just know that the entire banking, accounting and finance industry do not agree. And it's really hard to do financial planning if you are using cost basis.
And the bolded is one of the dumber things I've read on here, if we are pointing that out now and hurling insults as part of a debate. I didn't say that your stocks should be looked at as $0 in your net worth. You may have inferred that, but it's not what I said or implied. I said that you haven't lost (or gained) (as in "lost or gained anything actual or tangible") until you sell. I didn't say you had zero net worth until you sell. So that person certainly isn't destitute and nothing I said implies they are.
Then again, I'm also someone who doesn't track or care about net worth, in large part because I consider it a meaningless number. That's because it includes my car, which is depreciating and which I won't sell (until it dies, in which case I will replace it). And it includes my sofa and my shoes and the canned goods in my pantry, if we are being pedantic
My net worth as of today is $X. A week ago it might have been $X*1.04. It would be accurate, though fairly meaningless in the long term, to say that my net worth went down 4%. That is not the same as saying I lost $50k. I *lost* nothing, because I have what I always had. The value of what I had has changed.
If I had a painting inherited from Great Grandpa Villanello, signed by and in the style of Picasso, I might consider it to be worth $1M, especially after getting an estimate telling me that similar Picasso's have sold for $900k-1.3M. If the next day it is found that my "Picasso" was painted over an "E.T" movie poster by a guy named Bob, I have *LOST* nothing, IMO, though my net worth has taken a significant hint. And had I sold that Picasso a day earlier, I'd have then had $1m. But since I didn't, I have what I've always had--a painting of a guy with crocked eyes.
You and others can certainly choose to look at it differently, but I hardly think this is a "stupid" way to view things. And my way is far less likely to cause people to freak out and sell during a downturn.
Yes, stocks are liquid. But until they are liquid
ated, what you have made or lost on them is theoretical. And as such, unless you are preparing to sell*, it isn't a particularly useful piece of information.
*Since this conversation has turned a bit polemical, I will point out that yes, there are a few other ways it may matter, including things like using the current value to qualify for a loan of some kind. Just to head that off at the pass...