Market Moves Affect Your Personal Finances
Saturday, May 21, 2011, 2:00 AM | Leave Comment
For many, perhaps the majority of the people, Wall Street and other financial markets around the world is a mystery. But in retrospect, we know one thing and that is that the fluctuations of share prices affect all of us – often in a more direct way than many of us realize. The only thing we see on TV is all those traders yelling at something or someone.
What effect can their yelling have to do in our misery which is that we have lost so much of our hard-earned money?
Surely all those yelling traders have nothing to do with me? Right?
Wrong. Their actions will affect our pension, our child’s nest-egg, our investments and probably the value of our homes.
“The nature of capitalism is affecting everyone in their living room to a stunning degree at the moment,” says Dane Halling, of Arcturus Investments.
His financial advice firm is named after the third brightest star in the sky. Does that mean we should be looking to the heavens to guide us at this moment in our financial crises? It sure seems that way. The future moves in the markets are very difficult to predict. That’s what the experts keep telling us. So what else is new?
However, when I watch the evening news, there is an abundance of reasons that we should panic. But, in all honesty, we should not and we must not. We should stay put. If we can, we should wait it out.
I know for those who have lost jobs, homes, and have defaulted on all kinds of debt you can imagine, this kind of statement is not comforting, to say the least. But if you have some money left in stocks and other investments, just don’t panic.
Someone said the other day, “Unsettling as it is, the world is not going back to living in mud huts.”
In the short-term, housing market is affected.
We have always known, and recent events have repeatedly shown us, the ripple effect of a downturn in the market has an effect on house prices.
Because of the down market, traders have become less wealthy. They are less likely to buy homes. Because of the credit crunch, they cannot borrow money. The shrinking possibility of borrowing and less job security also slows down the housing market.
In recent years, employees might have been paid bonuses in shares, along with people who bought shares in the stock by themselves. Now the value of those shares have increasingly come down in recent months. To be fair, some have gone up.
Trying to cash those investments in early will cost you money and perhaps more than you can imagine. It is always worth remembering that investments are very different from savings in a bank account. They can go down in value as well as up, especially in the short-term.
Perhaps most affected by a slump in the market are those who are set to retire soon. So we see that, in short-terms, the housing market is one of first ones to be affected.
My pension. What happens to my pension now?
Some 60% of an average pension fund is invested in shares. The reason is that it is, usually, done for the long-haul. I am one of the lucky ones. I don’t have pension and my retirement account is down by more than 25% in recent months. The less money, the less worries. What else can I say?
People with personal pensions and close to retirement will be pulling money out of the stock market in order to buy an annuity – your income in retirement. Those buying an annuity now will have an annual sum until death that is approximately 15% less than it would have been a few months ago.
In a Nutshell
This could lead some people to delay their retirement and keep working. But over the long-term, if the markets continue to struggle, employers may be quicker to close down these schemes to new members.
