Q. Like many, we have "lost" a small fortune with our investments during the past few weeks. I would like your opinion.   I believe that since our total investments are still above what we put in, we haven't lost anything until we actually sell. My husband, however, honestly believes that since our portfolio was recently $100,000 larger in value than it is now, we have lost $100,000.

Is this factual, or is it simply a matter of attitude?

---B.B., Dallas

  

A. The value of your investments is the price they could fetch today.   It isn't what they were worth last month, what you originally paid for them, or what they might be worth in the future if everything goes well and the party of your choice is in the White House. Failing to focus on actual current market value is an invitation to wishful thinking and denial--- it's a very effective way to avoid recognizing a loss and commits many people to holding a stock until it rises enough to "break-even."

The primary issue in all buy/sell decisions is your estimation of the future for the new investment versus the existing investment. It's a change of horses, no more, and you want to have the best horse at any given moment. Whether you have a loss or a gain in the existing investment is only an issue when you can use a loss to offset a gain realized elsewhere or when realizing a gain will bring a tax cost.

The worst thing about investment wishful thinking is that it paralyzes decision-making. What all investors need to learn is that owning stocks is inherently risky and that losses are inevitable. It is quite possible, however, to have periods of intimidating losses and still enjoy major long term gains.

Another consideration is the relative size of the loss. If your portfolio is off $100,000 to $900,000 you've only lost 10 percent of your money. You should expect such fluctuations in value because they are entirely normal events. If, however, your portfolio is off $100,000 to only $100,000, you've lost 50 percent of your money and should be worried. A portfolio that volatile makes recovery difficult. When a portfolio declines by 50 percent, it must rise by 100 percent just to return to its previous value.

  

Q. With the recent change in Social Security that does not penalize us for continuing to work, I am thinking about pulling the lever on Social Security at my present age of 65, and continuing to work. We should get about $24,000 a year which I could invest gradually. The downside is the annual increase that we get for waiting; the upside is having the principal earlier.

I have not studied all the ups and downs--- any suggestions? I do not "need" the money, but having it sooner rather than later seems like a good move.

---T.S., Tallahassee, FL

  

A. Take the money and run.   Just as most people would benefit more by taking benefits at age 62 than by waiting until age 65, you are better off taking your Social Security income at 65 than later. While we could do some complicated calculations adjusting for the time value of money plus the effect of taxes, the simple way is a pretty good indication: if you take the money now you will receive a maximum of about $1,400 a month. Taking benefits a year later will increase them by about 6.5 percent which means it would take 15 years to break even. Delay an additional year and you're comparing 2 years of benefits today against a 13 percent increase in benefits in two years so the break-even time remains 15 years. Add some investment return on the early benefits and the break-even is even further away.