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 couple of years (prior to the pandemic), we have witnessed, unprecedented, growth, in stock performances.
However, many studies, indicate, only, about one-third of Americans, control (in terms of stock ownership) over two-thirds of all stocks owned.
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, 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: The 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, fluctuate! 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!
ABOUT THE AUTHOR: Richard, EzineArticles.com
