How Stock Market Volatility Affects You Even If You Don’t Have Stocks
The stock market can be intimidating. It’s a gamble to buy and sell stocks, so not many people take the risk at a young age. However, the market still affects non-investors, especially when it takes a dive.
Stock market volatility is when stock prices rise or fall in pretty dramatic fashion. When the market falls, it can cause a lot of people to panic. Whether you invest in the stock market or not, these highs and lows affect you more than you might think.
It affects your retirement accounts.
If you have a 401(k), 403(b) or IRA, the money that’s in that retirement account is being invested, it’s most likely being invested in a variety of ways, across mutual funds, stocks and bonds. So when the stock market dips, so does your account balance.
It all depends on how much of your money is being invested, as well as where it’s being invested. If your money is invested in companies that didn’t see their stock price fall, then you won’t notice a big difference. However, retirement accounts most likely have diverse portfolios, which means your money is spread across a lot of different companies and in multiple ways so that you’re protected from losing all of your money. There’s a good chance that when the market falls, so does the balance in your account. When the market rises, you might see your investments increase.
What To Do: Don’t panic. A retirement account is a long-term investment. Though you’re not guaranteed to make money, it’s more likely than not that you’ll end up with a profit in the end. Just sit tight and don’t check your account too often.
If could affect your company.
If you work for a public company, then it receives money from investors and shareholders, AKA, the people that own your company’s stock. When stock market volatility happens, it could cause investors to sell stocks. This, in turn, causes stock prices to fall and their value to decrease. When a company’s stocks decrease in value, the company loses money. If the company loses too much money, it could lead to layoffs.
Additionally, shareholders and investors are also consumers. When they see stock prices fall, they’re likely to spend less money in general. Companies may lose money because of this since they’re not making a profit from their products or services.
What To Do: Don’t panic. It takes a big dive in the stock market and a company’s stock value to cause layoffs. Plus, consumer spending will always fluctuate. If it’s down, it’ll most likely go right back up when the stock market shifts high again.
It affects the economy and vice versa.
As with layoffs and consumer spending, stock market volatility can have an impact on the economy. The economy also affects the stock market. When the unemployment rate is low, people are more likely to be making and spending money. They’re also more likely to invest it. The opposite happens when the unemployment rate is high.
The Federal Reserve increases interest rates when it believes the economy is strong. When the Fed sees that unemployment is low and people are making and spending more money, they’ll increase interest rates. For instance, you might see your savings account interest rate, credit card interest rate or potential mortgage or loan interest rate increase.
When interest rates rise, consumer spending may decrease since people are more worried about paying their bills than buying a new laptop. Companies may also borrow less from banks when interest rates increase, which could slow plans for growth. This could affect a company’s stocks because they’re putting less money into their own business, which could affect their profits and the value of their stock.
What To Do: Don’t panic. (Have we made that point clear enough yet?) When interest rates increase, it’s a positive sign that the Fed thinks the economy is strong, which means companies are most likely hiring and money is flowing. The stock market may still take a dive when this happens, but it should even out in the end. If it doesn’t, and a crash is on the horizon, then it’s time to double down on saving money and paying down debt so that you’re personally in a strong financial situation.
Whether you invest in the stock market or not, it’s smart to monitor its activity. It can really give you insight into what could happen to the economy, as well as your own financial situation. Set yourself up for financial success now so you never have to worry about your own dollars when the market dips.