If you’ve been watching financial media lately, there has been plenty of discussion regarding the Federal Reserve raising interest rates.
So…how exactly does the Fed do that, and what effect can it have on the stock market?
For starters: the Fed doesn’t actually increase the interest rates directly.
The Fed has something called a discount window. The discount window is where banks, such as Chase and Bank of America, go to borrow money in order to maintain their reserve requirements. The reserve requirement is the amount of funds a bank must have on hand at all times.
So what happens is that the Fed will increase the discount rate they charge banks. The banks then take the increase and pass it on to us, the consumers, by raising their rates. That, in essence, is how the Federal Reserve increases interest rates.
A rate increase can cause sell-off in the stock market as investors, attracted by higher rates on bonds, certificates of deposit (CDs) and savings accounts, move their money into these “safer” places to avoid risk.
As I stated in yesterday’s post and in my book, events like this don’t matter when you’re investing for the long-term. Hold, hold, hold.
Almost anyone could benefit from receiving a copy of The Stock Market is For Everyone as a gift, because we all should have financial freedom as we advance through life.
At 24 pages, it’s a quick, easy read – and it gives you the basic information you need to know to get started right then and there. No jargon, no unnecessary terminology. Start with as little as $25.00, develop an investing habit that sticks for life, and watch your wealth grow.
Who will you share the gift of knowledge with this Christmas?
Photo: Eve Livesey.
“Are we in a bear market?”
“What should I do if we’re in a bear market?”
As the end of the year approaches, you will start to see many financial newsletters calling for a bear market in 2019…especially considering the way the second half of this year has gone.
Throw in the potential Fed rate hikes, as well as the trade spat with China (reportedly resolved as of yesterday, but who knows?), and you have a recipe for a recession – which could lead to a bear market.
The truth of the matter is that no one knows for sure as to what next year will bring. I wouldn’t be surprised to see the market continue to move higher, and a bear market wouldn’t shock me either.
The last bear market we had was between 2008 and 2009. It lasted for 15 months. Since the 1930s, the U.S. stock market has had eight bear markets, lasting 1.4 years on average.
So what should you do if there’s a bear market?
It depends. If you need your money in the next three years, you should probably take it out of the market. If this year has taught you anything, it’s that you never know when a market sell-off is going to happen.
If your time frame is more long-term, which I hope is the case, then do nothing. If you are a regular investor, and you have a fixed amount that you invest each month, then continue to do so. If we have a bear market, you will have bought stocks at some very good prices. Do not listen to the pundits that tell people to jump in and out of the market because they believe a bear market is coming. I said it before and I’ll say it again: it is impossible to successfully time the market.
We here at Wealthy Joe are long-term investors. We don’t let a sell-off or bear market scare us out of owning great businesses for the long term.
Hi, friends. A short post this evening, as we in the U.S. ease into the Thanksgiving holiday…
So…corrections. What are they? Are we in the midst of one? How long do they last?
The definition of a correction is when a stock market average drops by 10% from its high.
Currently the Dow is down around 7%, the S&P 500 is down 8.5%, and the NASDAQ is down 13%. So yes – we are in what can be termed a correction.
How long can we expect this downturn to last? It’s impossible to know for sure, but if history is our guide, the typical correction lasts three to four months. When you consider that the market peaked in late August, we will probably be in sell mode for the rest of the year.
Stay the course. Buy and hold. You’ll be glad you did!
I wish all of those celebrating a happy and safe Thanksgiving Day!
No matter how much experience you have, have no one likes to see their investment account down 30%, 40% or 50%. However, that’s precisely what has happened to many of us over the past two months.
No two ways about it: The stock market has been absolutely abysmal.
If you’re like me…and own a lot of technology companies…then it has been even worse.
It’s very important, during times like these, to remember why you own the companies that you do.
Eventually, even a great company can have a bad quarter or two. It’s bound to happen.
However, it’s important to focus on the fundamentals of the company, and if nothing has changed, just hang in there.
We don’t invest in hindsight. We own stocks in real time. And history, although not guaranteed is definitely on our side.
A question I get asked quite often is “How much money should I invest in one stock when I’m first starting out?”
As a rule of thumb, the answer is “no more than 5% of your portfolio”.
However, this may not be possible if you’re starting out with an amount such as $500-$1000, as it’s very difficult to put $25-$50 in one stock.
In this scenario you would want to bump up your maximum initial investment to $100 per stock.
I understand that in most cases, this method will enable you to buy only one share of a particular company. But starting out this way will allow to to diversify your bets and add to your positions over time.
Please check out The Stock Market is For Everyone for more tips like this. And please share this blog with someone else today. I’d like all of us to see financial freedom, and it starts with investing that first few hundred dollars.
If someone said to me, “Eric, here’s what I’m going to do: I’m going to find a job, work 365 days a year, and give my entire salary to you, with no questions asked,” what do you think I would say?
I would say, “HELL YES!”
Well…that’s what buying stocks is like. Only it’s an organization, not a person. The business is working for you 24/7, and will share all of its prosperity with you.
In return, you will also participate in the losses; indeed, that’s what’s happening right now. But that could pale in comparison to the potential earnings you can realize! I’m going to share an article in the near future that explains this further.
There is no need to fear the greatest wealth building vehicle that exists today.
Check out my short guide, The Stock Market is For Everyone, to get started investing and having businesses work for YOU!