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Variety of financial thoughts

October 3rd, 2008 at 02:54 pm

Yesterday my financial planner sent us our "financial plan" - an 82 page document discussing cash flow, retirement, education, etc.

And the good news is, despite the current debt. Our net worth right now is in the positive and we should be able to retire early, DH at 50 and myself at 47.

So I was surprised. But feel really good now about being on the right track.

On that note though, I'm not sure how I feel about the economy right now. I moved DH's TSP back to the Lifecycle fund and I actually made money (about 50 shares worth) off of selling last week and rebuying this week.

But I'm not sure if the bailout will work and I have a feeling worse things may come & want to move it back to the Government Securities fund which averages a 5% rate of return each year since inception. At least then I'm not losing anymore since we've lost about 20% or so.

The reason I think greater problems may be around the corner is because of the mark to market rule.

Even my International Accounting professor doesn't agree with this. And I think in the long run it will collapse.

So thats why I'm considering pulling out the money I've already invested and continue to invest in the Lifecycle fund with new money but the money I already have - keep it secured.

I'm not sure though. I know we have time on our side, but I don't believe in this new accounting rule and I think it will blow up in our face in the end.

4 Responses to “Variety of financial thoughts”

  1. merch Says:
    1223066708

    Mark to market is most commonly used in the futures market for margin accounts. Even though open mutual funds mark to market every day. The transfer agency needs to know the price to buy and sell shares at.

    But what we real are talking about is Financial Accounting Standard No. 157. Now companies have been marking to valuation models for a long time. If we switched too historical costing, the companies would still have to come up with a fair values and write down accordingly.

    One on the myths is that switching to historical cost would stop margin calls. Do you think this would stop companies from issuing margin calls? When they decide the collateral isn't enough for the loan, they will demand for collateral or pull the loan.

    The purpose of mark to market is to bring transparency into the valuation of these complex instruments. I hate to say this but I believe your professor is incorrect. As I said, if I loan you money and you collateralize it with these instruments and you use a valuation model, that doesn't mean I have to use your values.

    What if you buy a car fro $15,000 and you got to bank five years later and go I want to take out a $15,000 loan because my car was bought for $15,000? Do you think they would give you the $15,000? No, they will access the market price and give you that.

  2. AmbitiousSaver Says:
    1223068765

    I understand. I think what concerns me most is that the SEC is allowing managers to use their own judgement on the basis of valuing their assets without a clear definition of the basis to be used. But I admit my initial posting wasn't very clear. International Financial Reporting Standards let you reassess value and its put under an equity account for gains/losses, but those tend to be based off of market value. We aren't in a normal market - fire sales are going on and if that is what managers are using to assess their assets values - they stand to potentially undervalue their assets.

    I could be misunderstanding all this however.

  3. merch Says:
    1223069365

    I don't disagree with what you are saying. I believe the market is lower then it should be. However the market value is the market value.

    But the real issue is that the assets are being used as collateral for loans. And if I was a loan officer, I would probably use market price to determine the collateral value. Because if I were to call the loan and a took the collateral, that is waht I would get.

    So in essence, the mark to market is a non-issue, because it is from the loan side and not the company that holds the asset.

    Good discussion though. An issue people hear a lot about but don't undestand.

  4. homebody Says:
    1223071643

    You guys are speaking a foreign language to me which is very unfortunate for me. With so much time and probably not really retiring from earning money that young, I would do the safest thing. You can always transfer it back if things start looking better, or do 50% safe, 50% little more risky.

    I am strongly considering a fee only financial planner to go over our stuff. You gave me a little push.

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