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The Rise and Fall of the Stock Market

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The stock market has proved itself to be a lucrative asset for making money for a broad spectrum of people across the world. People have entrusted their time and money in the stock market since May 17, 1792. In this article I will go over the rise and fall of the markets and how they can be caused by several different things. In this article I will cover one very big contributing factor in the fall of the financial sector in 2008; I will talk about what drives the markets, and also a few things that everyone should know before investing their money anywhere.
When investment banks, banks whose sole purpose was to buy and sell stocks, securities, and other investments were founded in the early 1900’s the banking system set up was relatively simple. The investment banks then were privately owned by partners that formed a company. The partners put the money up for the company, therefore they watched their money very closely and didn’t want to make any bad deals. They wanted to be well off but didn’t want to put all their eggs in one basket. In the early 1980’s though investment banks went public and then had access to an unimaginable amount of shareholders money. Now shareholders are the people who buy a company’s stock which means they own a small piece of that company and the company gets to use the money they bought the stock with at their discretion. This gave the investment banks a lot of power. They no longer had to worry about losing their own money, instead if they made a bad deal they lost someone else’s money. This gave the banks a false sense of comfort. They started doing risky deals such as credit default swaps which was accomplished through derivatives. “The standardization of contractual terms allows a loan to be packa...

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...a mutual fund over an individual stock is diversification, which you don't get if you invest small amounts of money in a few securities. For example, if you have $10,000 to invest, you can buy maybe 100 shares of five stocks. When you buy a mutual fund, it might own 50 to 100 stocks, so if one stock blows up, the entire fund won't go down in flames. The manager makes sure that the fund is not too heavily exposed to any one stock or sector.” (Bold 1). You can also choose a large medium or small geared more towards value or growth or get a blend of value and growth. It is important to have a professional managing your wealth because he has a vast understanding for the markets and is very versed on diversifying, or spreading out your money to create minimum risk at maximum profit.
There is also another investment, typically for the very wealthy called hedge funds.
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