Interest Rate Risks
The rate of interest that banks set has a big influence on businesses, and so it will affect your shares too. For example, it may affect savings rates and mortgage rates, which may affects companies that rely on insurance companies, or companies that have mortgages on their property. Even bonds, which are fairly safe investments, are affected because interest rates may make them harder to sell in the free market, meaning you have to keep your money invested in them until their term finishes. Interest rates may have a big impact on the companies you buy stock in, which means they may have an effect on your future wealth and the growth of your portfolio (your portfolio is just another name for your catalog of shares that you hold with different companies).
Not to labor the point, but interest rates may affect how consumers spend money, which means the companies you have invested in may have less customers for a while, which will negatively effect your share prices and may even result in the company going bankrupt.
Market Risk
This is a case of supply and demand at its core. If customers suddenly decide they do not need the products that the company you invested in produces, then they will stop buying and your shares will decrease in value and/or the company will go bust and you will lose your investment.
Supply and demand affects your share price too. If lots of people want the same shares as you, then their price will go up. A company that suddenly gains a lot of attention will often see its share price increase. On the other hand, if you watch share prices, you will often see that a share price goes down when there are large sales of the stock. This is because of supply and demand; when there are mo...
... middle of paper ...
...you need to invest in a company that is financially sound and growing. It has to offer products or services that consumers want and/or like, need and demand. It should also be in a strong and growing industry, and ideally within a strong and growing economy.
There are tutorials and glossaries online that will help you understand different words and specific elements to investing and investing strategies, but in its simplest form, you are buying shares and selling shares as if you were buying and selling postage stamps.
You should check the news for information that may be relevant to your company, which means doing more than searching for information on the company you want to buy shares of. Look up industry news, especially relating to your company’s competition. Look up previous share prices and track your share selections to ensure you sell at the right time.
people and business to spend and invest more money. Since the interest rate is low, firms and people will tend to spend rather than put it into bank. This is because they think it is not worth to put their money in the bank when the interest rate is so low. Besides, low interest rate also encourage firms to get a loan from the bank with a very low interest rate. This could increase the consumer consumption.
...urage people to hold more money and less bonds. One way to determine this is that an excess supply of money causes there to be an excess demand for bonds which causes the price of the bonds to rise and thus brings down the interest rate.
...come worse off. That is due to the reason that an increase in the level of interest rate leads to a relatively smaller current consumption, since borrowing from the future is not the ideal solution because it has become more expensive than before. Generally for a borrower current consumption always falls while savings rise.
This will have a bad effect on homeowners with a mortgage and small business owners due to the increase in interest rates and decreased money supply in the market. The interest rate is determined by the interaction of the demand and supply of loanable funds market. “Increases in demand will increase both the interest rate and the total amount of borrowing and lending. Decreases in demand will decrease both the interest rate and the total amount of borrowing and lending. Increases in supply will decrease the interest rate and increase the total amount of borrowing and lending. Decreases in supply will increase the interest rate and decrease the total amount of borrowing and lending”(Macroeconomics Bus 302 Lab concept 4). Therefore, when the federal reserve tightens the monetary policy, the housing mortgage supply will decrease and as a result interest rates go
Even though most of us may not realized it, interest rate actually play an important role in our everyday lives due to its great effect on the buying power. For instances, if the interest rate is higher, people tend to reduce their spending and rather save it in the deposit account due to the large interest that they can gained. However, if the interest rate is lower, they rather spend it than keeping it in the deposit account. The reason for this is because the ups and down of the interest rates have a significant impact on their personal income. Furthermore, since interest rate have a major impact on investment it is important for the investors to keep track on these interest rate’s trend before making any decision.
Stock investment means you are purchasing a share of the company, therefore the company’s success determines the value of your investment. Buying stocks is not a difficult process; clarification of some important terminology and differentiation helps gives you the foundation to start investing.
Interest-rate stability is very important for the Fed to control because otherwise consumers, like you and I, will be reluctant to buy things like houses due to the fluctuation which will make it harder to plan for the future.
With fewer dollars available as savings to banks and other financial institutions, interest rates are higher for both savers and borrowers than they would otherwise be. That makes it more costly to finance investment in factories, equipment, and other goods, which slows growth in the GDP.
Investors in the stock market judge earnings growth against two figures: the average industry earnings and the estimated earnings for the company. If analysts predict earnings to be above the industry average, a company’s stock price will usually rise. If companies report earnings higher than predicted, stock price will typically rise even more.
Interest rates and the effects of interest rates on the economy concern not only macroeconomists but consumers, savers, borrowers, and lenders. A country may react and change their interest rates, according to the prosperity of their economy. Interest rates, is the percentage usually on an annual basis that is paid by the borrower to the lender for a loan of money (Merriam-Webster). If banks decided not to use interest rates, it would be impossible for others to be able to take out loans and therefore, there would be far less spending money in the economy. With interest rates, this allows banks to take a percentage of the consumer’s money and loan it out to others, thus allowing economic growth to be possible. Interest rates also allow lenders to have a “safety net” which is necessary because there is a possibility that the borrower would be unable to pay back a loan to the bank. A nation’s interest rates can be raised or lowered and these shifts in interest rates correlate directly to aggregate demand. Aggregate demand, is the total demand for final goods and services in an economy at a given time (Business Dictionary). A nation uses interest rates for economic growth or to help prevent inflation. When economic growth is needed a nation would lower their interest rates. However, if a country is concerned about inflation, they may choose to raise their interest rates. When interest rates, raised or lowered, will have a negative or positive impact on consumers, and have a positive or negative impact on investors.
Product stops being a star product for the firm and becomes a dog instead due to rise in competition, loss of market share and slow market growth. Companies tend to liquidate their assets in such case to stay alive.
In conclusion, generally speaking the Law of Supply states that when the selling price of an item rises there are more people willing to produce the item. Since a higher price means more profit for the producer and as the price rises more people will be willing to produce the item when they see that there is more money to be earned. Meanwhile the Law of Demand states that when the price of an item goes down, the demand for it will go up. When the price drops people who could not afford the item can now buy it, and people who are not willing to buy it before will now buy it at the lower price as well. Also, if the price of an item drops enough people will buy more of the product and even find alternative uses for the product.
...ting in Amazon.com might be beneficial because everything that the company offers applies to a mass amount of people. This gives the company a great ability to grow with the times and have their services stay in high demand, this proves true through the almost constant rise of the stock. Facebook might be a good choice to invest in simply because of how popular it is to people using it. The stock has shown a steady increase for a while, and I don’t see a decrease in its popularity happening any time soon, which would make for a good investment. Overall, you can never be sure of the best stocks to invest in because the stock market can change on a dime. However, with using the best available strategies to choose your stocks, and of course with a little bit of luck, having shares in the stock market can be a very financially beneficial decision to anybody who invests.
Mutual funds will let small investors have more choices than they would have when investing on an individual level. The money from several investors is invested in different companies so that the risk is minimized. The strategy in this type of investment is to assure that a profit is made from some of the businesses so that if one should fail, others will still do well. You should really research where your money will be going and what kind of track record the businesses have had in terms of gains before investing.
Loyal investors act as partnership; provide sustainable power of financial support, continuous development in new market, more benefit into the company, strong cash