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.

Tagged as:

Leave a Response

You must be logged in to post a comment.