The Bank On Yourself Revolution. Pamela Yellen

      I don’t know if unrealized loss qualifies as an oxymoron. But I do know it’s moronic that we keep pinning our hopes and plans for our financial security and retirement on investment strategies we can’t predict or control. Looking at the stock market’s ups and downs since 1997 makes a day on the roller coasters at Six Flags look tame.

      At the time, my husband was sixty-one and theoretically four years away from retirement. Larry probably won’t retire at sixty-five because he says he’d get bored. But if we were relying only on the conventional financial planning wisdom, retirement wouldn’t even be an option for either of us.

      At least Larry and I have options, thanks to our Bank On Yourself plans. That’s not the case for far too many people.

      As I continued to review our retirement account statement, to my relief, another mutual fund showed an unrealized gain of $8,012.16. But I couldn’t get too excited, because I knew the word unrealized hides a bleak reality:

       You don’t actually lock in a profit (or loss) until you sell an investment.

      You don’t actually lock in a profit (or loss) until you sell an investment.

      (Are you wondering why we still own any mutual funds at all? We hold on to them for one reason only: to prove that even if you buy and hold your investments and avoid acting emotionally, the stock market is still a crapshoot where the odds are stacked against you.)

      The Federal Reserve’s widely publicized 2010 Survey of Consumer Finances showed that between 2007 and 2010, Americans’ wealth plunged by nearly 40 percent due to the collapse in home values and the stock market. It revealed that the net worth of U.S. families had been reduced to a level not seen since 1992. Yet there’s another side to this story that the report completely missed:

       You can’t eat a number on paper.

      You can’t eat a number on paper.

      Paper Wealth Versus Real Wealth

      Those glowing reports about how much Americans’ wealth had ballooned prior to the financial crash were pure fiction. Until you sell your assets and lock in your (hopefully) gains, you have nothing more than a bunch of eye-popping numbers on paper. Those numbers repeatedly sucker many of us into believing we have real wealth and financial security when we do not.

      It’s true that during the bull markets we had some exceptional growth. Then, of course, we lost those gains when the market inevitably crashed. There’s a big difference between paper wealth and real wealth. During the go-go years of the dot-com bubble, Larry and I got into checking our retirement account almost every day because it was growing that fast. Yahoo! Some weeks we’d see such an enormous jump that we’d high-five each other shouting, “We’re rich! We’re rich!”

      Didn’t we all feel like we were sitting real pretty again right before the financial crash of 2008? Then we discovered for the zillionth time that what goes up fast usually comes down fast, too. The stock and real estate markets did just that with a resounding thud. These collapses took the retirement security of millions of Americans with them. All our prosperity went unrealized.

      We see the same principle in our home values: The rise in a home’s value is only an unrealized or paper gain—and it may vanish just when you really need the money. During the real estate boom years, we got some astonishing appraisals. We’d hear that a neighbor sold their home and get all excited: “Oh my gosh! Look how much money they sold their home for!” Our home value seemed to be jumping up every month. But soon we’d figure out that the high sales price of our neighbor’s home meant little to us. It was nothing more than a number on paper unless we were ready to sell our home and lock in our gains. But then we’d have to find another place to live. Uh-oh. The inflated profit we could get from the sale of our old home would end up disappearing in the inflated price we had to pay for the next one.

      Paper wealth is really meaningless when it comes to having financial security and knowing the value of your retirement nest egg on the day you plan to tap into it. Real wealth and financial security come from having a strategy that guarantees steady, predictable growth—no matter what the economic climate is. That’s what Larry and I set out to find.

      What’s Your Money IQ?

      Q: If you have a $20 stock and it goes up by 40 percent, how much money did you make on that stock? (Hint: This is about a key financial principle, not a math question.)

      A: Most people don’t get the answer, and the talking heads on Wall Street hope the truth never dawns on you: You don’t make any money unless you actually sell your stock and lock in your gains—assuming there are any gains to lock in. The same principle applies to the value of your home and any other investments.

      The Wall Street Casino

      We’ve been told again and again that to get our money to “work” for us, to build a comfortable retirement and get a rate of return that will outpace inflation, we must invest in the stock market and be willing to accept its inherent risks. How many times have you heard that the stock market is the best place to grow your nest egg?

      I’m going to prove that this is a myth Wall Street has brainwashed us into believing! Wall Street grudgingly admits there are no guarantees that your investment account won’t lose some value in any given year. But let’s look beyond that seemingly benign statement to the heart-stopping reality:

       • Many people saw their investment accounts plunge by 50 percent or more when the dot-com bubble burst. Many investors—myself included—had moved their money into NASDAQ technology stocks, which plunged 78 percent from March 10, 2000, to October 9, 2002. Today, the NASDAQ is still well below its 2000 high.

       • Investors who were diversified beyond tech stocks didn’t fare much better. The S&P 500, which is a broader measure of the market, lost 49 percent in that same two-and-a-half-year period.

       • After the S&P 500 peaked at 1565 in October 2007, it proceeded to lose 57 percent by March 2009. That’s two heart-stopping losses over 49 percent in one decade.

      Then, as the market began to pick up steam in March 2009, Wall Street urged us to jump back into the market with both feet, and one of the biggest bull markets in history began. By the spring of 2013, they were boasting that both the S&P 500 and the Dow had hit new all-time highs.

      So after all these crazy-making gyrations of the market, how