No. of Recommendations: 1
What appears to be ours, in other words, is ours only by leave of the rest of the fraternity of investors, not one of whom is in any way committed to paying up for what we hold.

It looks like this is mainly aimed at stock holdings, which in a simplistic way is a right to a share of the company's earnings in its entire future. So its value really is "whatever someone is willing to pay for it" and isn't automatically valued or priced based on what you paid for it.

But think about other forms of wealth/value:
-Bonds: We (a government, a company) promise to pay you a percentage of the face value each year/quarter, and then give back the face value at the end of the term. Coupon payments can be changed and bonds can be called if interest rates drop. Usually bond holders are the first to get paid when a company goes under, but back in 2009/2010, remember how some companies bond holders were screwed over, like when the US government allowed bankrupt Chrysler to put money into its pensions and abandon bond holders who were legally ahead of the pension in line to be paid. There were many individuals hurt by that, but also some pensions (municipal government plus other companies) that really took a hit.
-Real Estate: You'd *think* that would be a solid if low-returning investment, but look at the farmer owners in South Africa, or even Americans who happened to be in the way of a development and got Eminent Domain'ed out of their property.
-Commodities: Something of real value that's hard to trade in quantities that reflect an individual investor, like I wouldn't own a retirement's amount of steel, oil, pork bellies and orange juice. Tons of money is lost/gained in trading futures in commodities based on not actually holding the commodity contract when it comes due, but in buying/selling based on if the trader thinks it'll be worth more or less in a couple days (or less). Remember all that frenetic activity in "Trading Places."
-Cash: Backed by the faith and credit of the issuing government, its purchasing power erodes with inflation. When I was in Africa, I held millions in local currency because the value had nosedived during a revolution and invasion.
-Gold (plus probably gems): You can't eat it...it's the literal definition "the value is what someone will pay for it." It's had a negative real performance over the very long haul, and in the US was bolstered by a one-time boost from Nixon taking the country off the gold standard in the '70s.
-Food: This is really a huge plus if a region can grow wheat or corn or hogs or something. But, it spoils (usually). Canned food is constantly searched for in every post-apocalyptic movie. That makes a pretty rotten investment in normal times (although it's great to have something on hand when there's a tornado or power outage).

Practically everything's value is based on "what people think it's worth now based on what they believe it'll be worth to someone else in the future." We can even throw in "after taxes" because there are plenty of things that are money losers until you count the tax benefit.
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.