More than a few of us believe that investing in the stock market is closely akin to gambling. Nothing could be further from the truth.
If you are at a casino and decide to place a bet at the craps table and lose the bet, you will forfeit your entire wager. Conversely, if you win, you will win an amount based on the odds of that particular number combination being rolled by the shooter.
When you purchase a stock on the New York Stock Exchange for, say, $1,000, you are unlikely to lose the entire $1,000, unless the company goes bankrupt and the stock becomes worthless. It is more likely that your stock will increase or decrease in value and you may lose 10 to 20 percent of your initial investment or earn that much when you sell the stock.
One inescapable fact concerning the stock market is that it is not a system in which both parties to a transaction can profit from the same transaction. Either the seller of the stock will “win” if the stock that he sells to you drops in value, or you, as the purchaser will “win” if the stock increases in value after you buy it. For this reason, the stock market is an adversarial system of trading.
This fact means that you must have in-depth knowledge about the stock you are purchasing or selling. This access to knowledge is what you pay your investment adviser for if you use such a person or firm to manage your investment assets.
You might be wondering about this question: What causes the stock market to go up or down? Natural disasters, current economic news, inflation, social unrest and investor sentiment, among others, are just a few of the factors that can impact the overall stock market. The stock market has risen more than 16 percent since the election, due most probably to the belief that the president is good for business.
An individual stock’s value will fluctuate based on whether or not investors perceive that the stock is accurately valued vs. its current price; prospects for the overall industry in which the stock operates is a big factor; and consumer sentiment about the overall economy contributes as well.
Consider that information technology stocks have risen almost 30 percent since the election. Why, you ask? I wish I knew, but the emphasis on cyber-technology is one contributing factor; the exponential growth of the internet certainly is an important factor; along with the rise of artificial intelligence and the sales of concomitant devices based on that technology.
Some additional facts about Social Security that we did not cover in my recent column:
• If you are considering divorcing your spouse and you have been married for nine and a half years, you may want to wait six months before pulling the plug. Why? Ten years if the required minimum period to qualify for a piece of your ex-spouse’s Social Security benefits. If you terminate the marriage after nine years and 11 months, you’re out of luck. If you make it for 10 years, you can collect a Social Security benefit based on up to half of your ex’s earnings or on the basis of your own earnings – whichever is greater.
• If your ex-spouse passes away, you may be able to receive benefits similar to a widow or widower. If you are at least 60, the marriage lasted at least 10 years and you didn’t remarry before age 60, you’ll most likely be able to collect your late-spouse’s benefit. How much you receive depends on the ex-spouse’s earnings. You can check on the Social Security website for more info.
• There are some key differences between Social Security benefits for spouses vs. benefits for widows and widowers. A widow/widower can commence receipt of benefits based on his or her own earnings record and later switch to survivors benefits, or begin with survivors benefits and later switch to benefits based on his or her own record – even if the surviving spouse is filing before full retirement age. You can’t do that with spousal benefits. Stated differently, a widow can begin drawing survivors benefits on her late husband’s Social Security when she is as young as 60, but only at a reduced rate. Then she can choose to leave her own Social Security alone, allowing it to grow in value until her full retirement age, or even age 70. This works for widowers, too.
Do you have a financial planning question for Greg? You may email him at firstname.lastname@example.org.
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