Where did all the money in the stock market go; Are you certain it’s any safer where you’ve moved it?
The DJIA is down approximately 6,000 points today Oct. 10, 2008 compared to its peak of around 14,200 about one year ago. This translates into roughly a %43 drop in its value which translates into trillions of dollars being removed from the stock exchange. So, where did all that money go? Surely it didn’t disappear, it merely moved. Panicked investors (some rightfully so) have moved their money from the stock market to what they consider safer sources such as government bonds and money market accounts. Certainly, the latter has much less volatility, however, in moving their money these investors have sustained real losses and will likely never recover the losses had they simply left the money alone.
Let’s step back a minute to break this down for those people whom have no clue how the stock market works:
1. The stock market was created to help people raise capital to help build their businesses. So, when a company goes “public,” they are essentially selling non-management ownership in the company – a financial stake in the company in hopes the company will grow ever larger and make them money on their investments.
2. So, those companies use that money to build assets and generate income, the same way a small business owner who borrows from their mother or father would.
3. As it stood last year when the market was at its highest and bad news struck that some of these huge companies people had invested in were essentially overvalued, the sell off began. People start selling off stock and taking that money and putting it into savings or government bonds.
4. So, the money is still here, it has simply been moved, and eventually it will come back short of a complete US government collapse and end of the US dollar.
So, ask yourself this question – are you truly saving yourself money by pulling out from the stock market, or hurting yourself? Unless you were the first to pull your money when the going got bad, and you are able to be the first to put your money back into the stock market when it turns around – you will hurt yourself trying to time the markets. Furthermore, if the US stock Market were to completely collapse, the US government would likely collapse – and those government insured bonds and US dollars in savings would be worth only the cotton paper they are printed on. Be smart, don’t panic – irrational people make irrational choices – likely many are doing now. Those irrational people will be hurt when a rebound occurs as they will have taken real losses.
What are the different stock exchanges or markets?
First, what is a stock exchange or stock market you ask (also known as share markets)? Basically, it is a company or organization that facilitates the buying and selling of stocks and other securites which is controlled by the US SEC.
What are the different stock exchanges? According to the US securties and exchange commision:
A “national securities exchange” is a securities exchange that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934.
There are currently ten securities exchanges registered with the SEC under Section 6(a) of the Exchange Act as
national securities exchanges:
- American Stock Exchange
- Boston Stock Exchange
- Chicago Board Options Exchange
- Chicago Stock Exchange
- International Securities Exchange
- The Nasdaq Stock Market LLC
- National Stock Exchange (formerly the Cincinnati Stock Exchange)
- New York Stock Exchange
- NYSE Arca, Inc. (formerly the Pacific Exchange)
- Philadelphia Stock Exchange
Certain exchanges are also registered with the SEC through a notice filing under Section 6(g) of the Exchange Act for the purpose of trading security futures.
There are also two exchanges that the SEC has exempted from registration as national securities exchanges on the basis of a limited volume of transactions:
- Arizona Stock Exchange
- virt-x plc (formerly known as Tradepoint)
Now, why are there so many stock markets or exchanges ? In essence, they track or trade different things in different ways, like in person or by electronic automaton. For example, the largest in the World is the NYSE. The DJIA or dow jones industrial average is an indicator and representative of the largest public companies financial health, also called your blue-chip companies.
How to get started in the Stock Market buying stocks
Interested in buying stocks but not sure what to do or how to buy them? After reading through my lessons you should have a good idea on what your objective, investment horizon (how long you plan on investing), and risk tolerance are, so you have a plan to get started. I’m assuming you’ve decided to either invest on your own as you’re not offered a 401k plan or you’ve maxed your IRA’s and such, so you want to try the share/stock market. Also, I’m assuming you’ve done your research and have conducted some kind of analysis on the companies you will be investing in. If you have done all of the above, then you’re probably more than ready.
So, how do you get started with this stock market? How can I buy shares in Apple, Microsoft, Google, or whatever your choice in stocks are- you’re asking? Well, here is what you need to do as shown below:
Find a good broker or brokerage firm. These are the guys with the necessary licenses to place orders for you on the stock exchange. Don’t have any idea what I’m talking about? (Be sure to check out our thorough broker reviews where you can get info on most every broker out there.)
A couple of things to keep in mind when selecting a broker:
Some are more costly than others with regards to buying and selling and offer the exact same service. Some are more costly because they offer more client services than others. Be sure to ask what you get with them and relate it to the cost, to know which is more cost effective for you and your investments. Watch out for hidden charges on things like transfers and handling, ask for a full fee disclosure.
5 Reasons why you shouldn’t invest in your own company
There are multiple reasons why investing your money in the company that sign’s your paychecks is a horrible mistake. Too many people new to investing and their 401k’s dump in huge amounts of their monthly contributions into their company stock. In general, it’s a bad idea to have any more than 5-10% of your money tied up in the company you work for, and here are my top 5 reasons why:
5. You’re emotionally tied to your company; It is more than likely you will place irrational bets on its success as you want to see it succeed badly. Even more, you will probably hold onto the investments longer than you would have otherwise.
4. You’re loyalty to the company is not tied to how much of your money you invest in it. Your main priority should be diversification of your portfolio, not loyalty through investing your earnings with them.
3. Enron. Those people not only lost their job, but many of the people heavily invested in the company stock lost their entire retirements. Don’t think your company is immune to this type of fraud either. Many of you may be unaware of another recent collapse of a financial empire Bear Sterns, fraud played a role in their demise.
2. You probably think you know more about the business than you actually do. Just because you’ve worked there for 5, 10, 20, or even 40 years doesn’t mean you will see what is coming right around the corner, or even understand how outsiders view your company. Unless you are the CFO (Chief financial officer) or an accountant, you better stay away from this type of thinking and leave it to the professionals with deep pockets to toy with.
1. Your company may have restrictions on the money you invested with them. That’s right, they might just decide that you must hold onto their stock that is losing money. Now wouldn’t that suck? Watching your retirement fund deplete in front of your eyes, but your hands are tied because they won’t let you sell. Stay away from this to begin with, and you will never have this problem. Your other stocks and options will likely be much more liquid (easily convertible to cash).
