While the stock markets continue to tumble after the American taxation of sweeping and swing prices, many ask that this be considered a “stock market crash” and what it could mean for them.
The word crash has been used sparingly over the decades and is generally reserved for a drop of more than 20% compared to a recent peak in one day, or in a few days.
October 19, 1987 – also known as Black Monday – The US stock market lost 23% of its value in a single day, and other stock markets have experienced similar falls. The British index FTSE fell by 23% over two days – in part because it closes earlier than New York, and it therefore often plays to catch up with everything that happens in the United States the next morning.
It was most certainly a crash.
In 1929, the US stock market lost more than 20% of its value in two days – and 50% in three weeks. It was the famous Wall Street accident that inaugurated the great depression of the 1930s.
In comparison, the US stock market has lost around 17% of its value compared to its peak in February and is now down 2% compared to last year’s period.
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However, these are the most important and fastest drops we have seen on the world markets because they were seized by Cavid-19 panic at the beginning of 2020.
A decrease of 20% compared to a peak is considered to be a “lower market” – a description of a market which seems more likely to drop than to rise. We are very close to this description at the moment.
While many people directly have shares and shares, exposure of most people to stock markets goes through their pension plans. There are two types – defined service schemes that guarantee fixed retirement income and a defined contribution where your pension pot increases and falls with the financial markets.
This may seem that the defined contribution plans are very vulnerable to this sale – but all your contributions do not go to the actions. Much of the money goes to safer investments such as state bonds. These tend to increase value when the stock markets drop because they are considered to be a “safe refuge” as well as other assets such as gold.
This is exactly what happened here.
State bonds have increased in value and which can compensate for part or all of the decrease in shares according to how your retirement savings are allocated.
The closer you are to the retirement you are, the higher percentage of your retirement pot is likely to be invested in bonds – so the less you will be assigned.
There have been many falls like this during the decades that followed the Wall Street crash, but in the long term, stocks turned out to be a good investment – and retirement savings are a long -term game.
It is important. The value of the shares of a company is a measure of the profitability of these companies which should be in the future. A falling market is an indication that most people think that most companies are likely to see their profits drop.
Markets believe that the Price Bomb of US President Donald Trump should increase prices, reduce demand and reduce profits, make companies less precious and more inclined to reduce investments and jobs.
Therefore, the real warning sign here does not concern the value of your pension but the health of the economy in which we live and work.
Falls like this sometimes, often even, an economic slowdown. It is more a concern than the value of your pension, which has seen and will see volatility like this over the years.
But that does not mean that it is not a very great moment for the world economy.
