Last Updated on January 15, 2019 by Sultan Beardsley
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Investing has become crucial to our economy and the dictation of foreign markets. Back in the robber baron days, when companies first began to offer equity in the form of stocks and bonds to the public, not many people had the knowledge nor resources to invest. However from this period up to the Great Depression, investing became much more prevalent in households and people among the middle class. This is due to the incentives created by those in charge of the markets. When margin buying and selling was introduced it gave anyone the ability to invest even if they didn’t have the money to purchase the amount of stock they desired. In theory, this would benefit banks and the stock market: more people buying stock caused prices to skyrocket, and the more people buying on margin, the more federal banks could make off of interest on the loans people took to buy stock. As more and more people began investing by using the banks’ money, it eventually caused the most catastrophic decline in our economy ever recorded. At this time, the majority of the middle class had put unreasonable amounts of their money into the stock market, and most of them lost everything. This was easily the most significant time in the history of the stock market as it led to a the birth of an entire new generation of investing.
When the stock market returned and the economy stabilized, mind you this was slightly due to World War II and the land lease act, more companies than ever turned to the stock market for funding, thus growing the market and the shares available in different sectors. This meant that more companies could vet their employees’ salaries in the form of stock rather than tangible currency. This not only created more shareholders and people investing in companies, but also broadened the different sectors in which people could invest. This truly began to dictate the economy and once again drove the stock market up. However this time around, people were more wary of investing in stocks after the recent demolition of our economy. In turn, the federal reserve began to create more control over what people were investing in, thus limiting the potential downside and risk for another fatal crash. This was accomplished by incentivizing people to invest in the bond market, and the stock market, by changing the federal interest rate. Still true to this day, when the federal reserve lowers the interest rate on bonds, more people invest in the stock market as there is less of a return on the bond market. However, when the Federal Reserve raises the interest rate, more people invest in bonds as they’re making more money on their investment and banks are having to borrow money at a higher rate thus causing the stock market to go through a correction. These actions by the Federal Reserve have had great influence on the market and kept it at a relatively reasonable rate of growth and expansion.
Investing is significant, especially in this country, for it truly dictates our economy. Furthermore, people should be taking a percentage of their money and investing in order to have some money put away that is actually increasing in value with time rather than lying dormant, thereby losing value due to inflation. When we have an excess of “still money” it halts our economy and can cause a crash. That being said, get out there and read some more articles on how you can begin investing your money!
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