I looked at my husband’s IRA today. I shouldn’t have because the site of his balance lately fills me with panic. You see…I decided to stuff his IRA chalk full of AIG. Oh, please stop laughing. That’s not very nice.

I bought AIG at a couple of different times and prices, so my cost basis is only $1.87. Of course, as you can see from today’s closing price (AIG $1.70, - 5.56%), I am currently showing a loss for that position. Now, this does not mean that I have lost money—because I haven’t. The only way I can actually have lost money right now is if I sell at a price below my cost basis (keep in mind the commissions to sell also). This means my losses should be referred to as unrealized losses.

While you own a position, you still have all the upside potential that position has to offer. So if AIG shoots up to $5 per share in a year and I haven’t sold it, I’ll be showing a gain (an unrealized gain). I won’t actually have a gain until I sell at a price above my cost basis, but it’ll certainly be easier to entertain that thought once AIG is well above my cost basis.

Once you sell, unrealized losses and gains turn in to realized losses and gains. Until then, you are still on the ride–grab a barf bag and strap yourself in.

With this in mind, if you are 10 or more years away from retirement, don’t freak out about the “losses” showing on your monthly retirement account statements. They aren’t real until you make them so.  Unless the company goes bankrupt, in which case you’re probably screwed.

Later,

Yo