NEWS
Why stock markets matter for you Stefan Armbruster, BBC News online
The saying goes: 'Don't invest what you can't afford to lose’.
But as stock markets fall. it is not just people who own shares who lose out. When the bears replace the bulls-in other words, when the market falls- it affects almost everyone because stocks and shares have become an integral part of almost all our financial lives.
There are a variety of ways in which stock market movements impact on our lives. The upbeat side of the growth in share ownership is that when the stock market goes up, consumers with shares feel richer they borrow more and they spend more. But just as the stock market can go up, it can also go down. Usually the first to react to this are the institutional investors who are involved in the financial markets on a daily basis.
The internet boom is an example. Many personal investors felt they were burnt by the popping of the dotcom bubble. By the time they got around to selling shares in any number of failing internet based companies, the b City investors had already pulled out of the market. The institutional investors did not escape unharmed either. And the hits that they took also have an indirect, but potentially serious, effect on many people's financial health. Any pain suffered by these institutional investors impacts on the returns paid on pensions, savings accounts or the interest charged on mortgages.
For individuals with a more direct interest-say day traders attracted by the tech boom-share holdings can be used as collateral to borrow money. But if the value and income from shares evaporate and the bank calls in the loan, the result can be big losses or personal bankruptcy. Meanwhile pensions linked to the stock market. like the ones being promoted by the UK government, are not immune. Unlike the state pension which is paid out at a rate set by the government, investing in a private pension indexed to the stock market can increase the value of the contributions dramatically, but they can also be erased.
Your job can also depend on the markets as companies use their valuation and the issue of new shares to raise capital to expand. If they are unable to do this then they have to find ways of increasing the company's value to attract investors The key tool they use is to cut jobs.>