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Variable Wealth

Discussion in 'General Investing Discussion' started by Johny_come_lately, 27th Feb, 2010.

  1. Johny_come_lately

    Johny_come_lately Well-Known Member

    1st Jul, 2009
    SE Queensland

    After years of investing, I still can't get my head around one area. It is the concept of wealth variation.

    The market goes up, I am richer. The market goes down, I am poorer. Nothing is static.

    Even my internet valuations can be three days old.

    In the good old bull days, up was king.

    Now, anything is possible, in this brave new world!

  2. Chris C

    Chris C Well-Known Member

    2nd Apr, 2008
    Brisbane, QLD
    I think way too many people worry about "wealth" when they should really be feeling rich when they see increases in "cashflow" or their "income", because the "value" of shares and property are often very dependant on how much money is floating around in the respective markets.

    The real tradegy is that most people percieve increased "wealth" as justification for increasing lifestyle spending, which is what has happened over the last two or three decades, thus the reason many choose to live beyond their means.

    Most investors in the western world saw the values of their stock and property portoflios sky rocket which made them feel they could live beyond their income because they had "wealth" they could sell down to raise cash if needed, but of course in most western countries with both the share and property market crashes it has left people without the wealth they thought they had and the numerous debts they accumulated living beyond their means that they had plained to finance by selling down assets.

    It's amazing how much perceive wealth can influence household spending as well. According to the RBA for every $100 in increased stock market portfolio value increases household spending by between $6 - $9 a year!

    That is a huge jump in unfunded household spending if share prices have only been artificially inflated by increases in debt speculation.

    So I'm all for being more conservative, and making sure that asset "values" are justified by the "cashflow" they produce. Just food for thought...