Starhub

[weijian]

I get what you are saying about capital gain. But I guess I see it differently. Cash invested and capital gain are two different things for me and thus I don't combine them.

In behavioral finance literature, the term used for this is mental accounting bias, ie. Assets have been assigned roles and been treated separately, when their common unit, $ is totally fungible.

Folks who suffer from this, tend to behave like this:
(1) No difference between own capital and capital gains (when Mr Market doesn't care about it)

(2) Cash from passive returns like windfall (lottery) or investments, can be more readily used for treats, than our 'hard earned' salary (when the $ is still yours anyways)

(3) I start a savings account to religiously save up for a holiday while still paying down credit card/student loans (yes, seeing progress as I work towards my holiday goal is more important than paying interest on the loan)

(4) All stocks in a portfolio, are reviewed separately. Losers are kept, winners are sold (so that the 'overall mental account' can be kept on positive ledger)