- December 12, 2021
- Posted by: Robert Brown
- Category: Investing
Although, some people experience, stellar results, while others, discover far less profitable experiences, the American stock market, is a major component, of the overall United States economy! What specific indexes mean, and represent, and, the reasons, they go, up, or down, is, often, a somewhat, complicated one! For more than, the last 6 years (prior to the pandemic), we have witnessed, an unprecedented, growth, in stock’s performances. President Donald Trump, often, seems to point to, these performances, as proof, of his superior handling of the overall economy. However, many studies, indicate, only, about one – third of Americans, control (in terms of stock ownership) over two – thirds of all stocks owned. In addition, detailed studies of many aspects of economic – related areas, show the so – called, wonderful, Trump economy, to be, parallel, and a continuation of the last 3 years of the Obama administration. With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, 5 possible explanations for the strength, and, apparent, growth, of the stock market.
1. Few options for investments/ investing: With this prolonged duration/ length, of record – low (or nearly), interest rates, other investment possibilities/ vehicles, have lost much of their attraction, because, bond and bank interest/ dividend rates, are so low! The Federal Reserve has, also, recently, indicated, there are no plans, to raise these rates, and changed, their guidelines, for evaluating inflationary risks/ responses, etc. As a result, obviously, investing in stocks, has gained, its attractiveness!
2. Tax advantage of capital gains: Profits/ gains, from stock gains, known as capital gains, are treated, favorably, by our tax code. Obviously, this makes these vehicles, even, more popular, for some!
3. Seeks growth, over – time: Historically, investing in quality stocks, over, the long – run, has been, a great way, to protect yourself, against inflation! This is far different, from, seeking speculation, and quick – bucks!
4. Some smoke – and – mirrors: Beware of smoke – and – mirrors, especially, when it comes, to politicians, playing politics, for their personal/ political agenda/ gain, and/ or, self – interest! There is a significant difference, between, a strong stock market, and, the overall economy, which includes, jobs, job quality, inflation, and overall, economic strength!
5. Risk/ reward, and seeking higher/ better profits: Reality is, stocks go up, and down, and a wise investor, considers, the overall, risk/ reward, and his personal risk – tolerance, patience, understanding, and how it fits into the overall economic plan (personal financial planning).
Historically, stock prices, and the overall, stock exchange, fluctuates! Over – time, used properly, and wisely, investing, in these, is a smart/ wise component of one’s overall, personal, financial plan! However, the stock market, is, often, not, an indicator, of the overall economy, nor its strength, and weaknesses!