Readers Question: As well, how does the stock market affect the economy? I understand the purpose it serves in raising funds for companies but not the role it plays for the investors? Anything to do with saving?
Sorry if it is confusing… Any sort of help would be greatly appreciated.
Importance of Stock Market includes:
1. Raising Funds for Companies.
Barclays recently announced a share issue to raise just under $9billion. This is to try and help the company survive the credit crunch and so it is important for the banking system, which currently needs more liquidity.
2. A place for investment.
Pension funds and investment trusts look for a variety of investment options. They will try to get a balanced portfolio to provide income and capital gains for their members. The stock market can traditionally offer a mix of interest (dividends) and capital growth over the longer term. Of course, the stock market is more risky, but, if investment trusts get it right they can offer an excellent return for their trust fund. People often forget how much dividends you can get from shares. For example, Barclays currently offer a dividend equal to 11% of the share value – making it excellent value (assuming they don’t have to write off billions of bad debt in the near future)
3. Share Prices and affects on economy
Movements in the stock market can also affect the macro economy in long run. – How does stock market affect economy?