Talking Investments - Paper Loses

I think differently to most people, I know that, though rarely do I see it. One such time came talking with a friend & our teacher about 'paper loses'. You know the scene - the stock market crashes, and the doom bearers on TV and the newspapers state how many millions people have lost in one day. Fear rises. For the very wealthy, the loss of £500million may not effect them. But for the average person on the street, the thought of their £15,000 pension now worth £500 is a little more alarming....

And yet, it's obvious to me but maybe not all, no one has in fact at that moment lost anything!

Let me explain. Stocks & Shares go up and down (&up&down&up - crash and boom, crash and boom....) Yesterday you had 1000 shares worth £15 each - wow, that's £15,000 worth! Today they are only worth 50p each - oh no!...you've lost £14,500.....BUT, NO YOU HAVEN'T! It's what's called a paper debt. Only if you sold your 1000 shares TODAY would you receive the £500 they are worth...

So you keep the 1000 shares...and in time, things improve, and soon they are worth £15 again.

So when you hear them say how many millions of pounds have been lost in a stock market fall, don't panic (unless you are planning on selling your shares that same day!) - because like all things, some time later, they are likely to go up again, and back down and up many times. (It is of course another matter when a company goes bust - which is very sad for all effected, but I'm just referring to paper debts here).

So investments are confusing at times - everyone wants to know that the money they are putting into something is working for them. Usually this means financial gains, but many times it means much more....and that brings me to my next entry, which you can see here...