Given the recent turbulence in the stock markets, buying shares may seem a risky business. However, despite the short term volatility of the stock markets, buying shares provides an excellent opportunity to increase your long term capital. Historically, investing in the stock market has given greater returns than other investments such as saving in a bank.

Furthermore, the stock market gives you the potential to pick out shares which can easily outperform the market. For example, investing in a blue chip company like Disney shares, would have given an increase of 13% in the past 12 months. (despite the recent setbacks associated with general falling share prices.)

Which ever stock you decide to buy the best attitude is to see it as a long term investment. Therefore, even if there are temporary setbacks in the value of the share you can remain detached. For example, the disney stock we used as an example, has fallen by 5% in the past 2 months. But, this kind of short term volatility is inevitable. The successful investor will not worry about short term fluctuations.

Share in a frame are a company who offer an opportunity to buy a framed share certificate. It would make a good long term investment / present. As a gift there will be no disappointment of gaining an unwanted present. It also enables the chance to significantly increase the value of the gift over the long term.

Other Recommended products:

Harley Davidson Stock

This is a sponsored post:

Labels: Stock Market

What effect does a falling stock market have on the Economy?

Stock exchanges, in both the UK, US and around the world have recently witnessed significant falls in their value. For example, the London Stock exchange has fallen by 10% in the past month. For many people who don't own shares, they may ask does a falling stock market impact on the wider economy? The answer is that it depends on many factors.

1. The stock market has successfully predicted 10 of the last 2 recessions.

The stock market often falls without causing a recession. For example in 1987 the stock market crashed by 25%, but economic growth remained high. Often when a stock market fall it is merely correcting for a fundamental imbalance in the value of shares and is not a reflection of wider economic problems

2. Falls in share prices do not necessarily lead to lower spending.
Most people who buy shares see them as speculative investment. When they go up they don't start spending more; when they fall, they don't reduce spending. Basically wealth in the form of shares is a very poor guide to consumer spending; unlike the value of houses which can affect consumer spending.

3. Effect on confidence. Falling share prices can undermine business and eventually consumer confidence. Falling stock markets reduce the scope for firms borrowing money. Therefore, they may reduce their investment spending which impacts on the economy.

4. Reason for falling share prices.

The impact of a falling stock market usually depends on why it is falling. For example, if share prices are falling because they are overvalued, this is not going to affect the wider economy. However, if falling share prices are a reflection of serious economic problems, then it is the serious economic imbalances that will cause a recession. The stock market is merely an indicator of the economic problems.

With regard to the current economic problems, a significant cause of the falling stock market is problems in the Sub prime mortgage industry. Many borrowers are defaulting on their repayments causing some big sub prime lenders to go out of business. This has affected many big banking and investment firms who have had to write off bad debt held in these mortgage companies they had invested. On its own this will not cause a recession. However, a real downturn in the US Housing market could be a trigger to causing a recession.

If house prices are falling, consumer wealth and confidence falls, this causes lower spending and lower growth. If people are defaulting on mortgage payments and having homes repossessed it means they are struggling financially. Therefore, this will contribute to falling growth. If problems in the housing market are extensive and widespread this could be a catalyst for a full blown economic recession.

Therefore, there is a link between share prices and the economy. However, often the link is merely to serve as an indicator of economic strength. Share prices are not the cause of recessions, but can sometimes be a barometer of the state of the economy.

See also: effects of Falling Stock Market on Housing Market

Labels: Stock Market

Will a falling Stock Market adversely effect the US and UK Housing Market?

With Global Stock Markets suffering their biggest fall for a decade, it is worth considering the economic effect of a fall in stock markets.

First of all it depends on the severity and length of the stock market fall. For example the stock market crash of 25% in 1987 didn’t cause any significant economic problems in the UK or US. Share prices soon recovered and in the UK the late 1980s saw a remarkable period of high economic growth. This was partly because; in response to falling shares, the UK govt cut interest rates and taxes to boost demand. There then followed a rise in economic growth and a rise in house prices.

However other experiences show us that falling share prices can have an adverse effect on the economy. Most notably the great depression was caused by the wall street crash of 1929. What happened in 1929 was that the fall in share prices was so big and prolonged that it caused a general decline in economic confidence and collapse of certain financial institutions. (especially medium sized banks in America) with a fall in confidence, firms reduced investment and consumers reduced incomes. This caused the initial fall in economic growth and rise in unemployment. These effects were magnified by an adverse multiplier effect. As people were made redundant they in turn spent less, causing further falls in AD and economic growth.

Furthermore a fall in share prices causes a fall in consumer wealth. There is a link between wealth and consumer spending. For example rising house prices often increases consumer spending because people can remortgage their houses. However generally wealth held in the form of shares is not directly linked to consumer spending. This is because most people who own shares do not base their consumption on the value of shares. Shares are seen as speculative investment. So even with wild fluctuations in the price it may have little impact on overall consumer spending. (It is also worth noting only a small % of the population have significant savings in shares).

Therefore a fall in share prices won’t necessarily affect the UK housing markets in an adverse way. Consumer spending and growth need not be derailed by a 5% fall in the Dow Jones. However a fall in share prices may make a contribution to a further decline in economic confidence. In America the US housing market is already in decline, with house prices falling. There is also persistent concern about the size of the US current account deficit and levels of debt. Therefore a falling stock market may further undermine economic confidence and make the prospect of a recession in US even more likely.

Labels: Stock Market, UK housing Market, US housing Market