news reports

Yesterday morning I got into the car to come to work and as usual I put on the news to catch up with the overnight news and I wish I hadn’t - the leading news item was that the sharemarket overnight lost “billions of dollars!!!!” due to some problems with Greece.

And to make things worse the announcer went on to say that superannuation funds have also lost over $70 billion or as he put it “wiped off”. I thought “oh no, this is not going to be a good day for me” because I know that these sorts of news do create panic and worry in people’s minds.

By now you should know sharemarkets going down is not something to ignore but at the same time it should not cause you concern because the reality is that the sharemarket does not lose money for anyone – what it does is it reduces the “paper value” of any shares at a given point of time

e.g. let’s say you have 1,000 shares in Company X which is valued at say $2.50 each giving a total value of $25,000. If the market goes down to say $2.28 per share - you have not lost any shares, you will still have the same 1,000 shares it is just the total value of those shares as of that moment will be $22,800. Technically, this is a loss of $2,200 but it is only “paper loss”. In other words, you will only lose that money if you choose to sell them then. But if you don’t sell and keep the 1,000 shares and wait for the shares to go up then you would recover that loss.

This is why it is important for people that dabble in the sharemarket to do so for the longer period of time – not for the short term.

And the same applies to property. Recent articles in the papers reported that property values are down by 10% from the same time last year. So if you bought a property last year for let’s say $500,000 then the value of that property now is $450,000. Now if someone told you that your house is worth 10% less than say 12 months, would you feel that you have lost money? Of course not. You would definitely like to know that the value has gone up but if the market says that it is down then you just accept it and get on with life. Would you panic and sell your house for 10% less? Of course not.

I hope my explanation will help you understand what the news reports mean when they scream “Property values are down!! Or billions have been wiped off sharemarkets”.

Just ignore it but if “the worry persists” see your financial adviser.