Fluctuation in the stock market has a direct impact on businesses and how they operate, but what does it mean for your wallet? Even if you are directly involved in the stock market, you may not understand its influence on the economy. What you’ll find is that the stock market has a broad effect that may affect you even if you seemingly don’t have any stake in it.
Do you own stocks?
Even if you haven’t purchased stocks through a brokerage or dealer, you may be involved in the stock market if you have a workplace 401(k). According to NerdWallet’s Anna-Louise Jackson and Arielle O’Shea, mutual funds — a collection of stocks and bonds from multiple companies and agencies — are a common component of 401(k) portfolios. If you have a workplace 401(k), you may be reliant on the performance of the stock market when it comes to your eventual retirement.
Whether you own stock directly or through a 401(k), it’s important to remember that your investment in the stock market is a long-term one. While you may be tempted to monitor the performance of the stock market, riding the highs and panicking at the lows, your best bet is to hang tight and stay the course. Obsessing over every peak and valley will only cause you a great amount of undue stress, which can hurt your mindset and your health.
As CNBC contributors Emmie Martin and Shawn M. Carter note, market volatility is a regular part of being an investor. Acting shortsightedly and selling stocks abruptly is not advisable even during trying times. You’d be better suited to speak with a financial advisor to consider your next steps, which will likely be less drastic than you might think.
What if you don’t own stocks?
You may think that not playing the stock market means you are more or less exempt from its effects during high times and low slumps. This is not necessarily the case — because the stock market is a trusted indicator of economic prosperity, its performance can have an impact on the economy that reaches even those who don’t own stocks.
Ryan Cockerham, writing for Zacks, notes that the performance of the stock market may affect the housing market. The performance of the stock market alters the bottom lines of lending institutions, which will, in turn, lead to changes in interest rates for mortgages. As Cockerham notes, if the market is volatile, interest rates may be higher because of economic uncertainty, which makes it more difficult for people to buy homes. In contrast, if the market is steady or prosperous, interest rates are more likely to fall.
Because the performance of the stock market more apparently impacts companies, the status of the stock market may be something to consider if you’re searching for a job. In times where the stock market is booming, companies have more money to invest, which generally means more expansion and more jobs. When the market is volatile, companies are more likely to take action to save money, which can lead to layoffs and downsizing in extreme circumstances.
If you plan to get involved in the stock market or want to know more about how it affects you daily, reach out to a financial advisor. Leverage that expertise to learn more about how the market works and how you may benefit by investing in stocks.