The Risks In The U.S. Stock Markets Nobody Wants To Discuss
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
The Risks in the U.S. Stock Markets that No One Talks About
Summary
Investing is often undermined by nationalism, especially at large investment firms. This mindset can significantly impact returns negatively.Article
Investing is a field where nationalism can be a major obstacle to achieving good returns. Unfortunately, this sentiment permeates many large investment firms.
In March 2007, the S&P 500, a prominent U.S. stock market index, was slightly above 12,000?"below the 1,250 level it had seven and a half years earlier. If your portfolio mirrored the S&P 500 during that time, you would have less money now than you did back then. Furthermore, the rapid devaluation of the dollar means your purchasing power has decreased, making it a long wait for little to no gain.
And that’s the better part of the story.
The bad news is that the U.S. stock market’s performance may deteriorate further by the end of the decade. One major concern is the poor credit quality haunting numerous American companies, many appearing as overleveraged as the average American consumer.
In a report by Standard & Poor's released on May 24, 2006, it was noted that 85% of corporations at risk of a credit downgrade were based in the U.S. or Europe, with 61% being American. The automotive, consumer product, and retail/restaurant sectors are particularly vulnerable, with 80-88% at risk for downgrades based in the U.S. This isn't merely a reflection of U.S. market size; 75% of publicly traded companies are based outside the U.S., according to a Forbes Online report from February 2006.
Returning to the notion of nationalism:
Investment decisions driven by nationalism can lead to missed opportunities. Large cap foreign stocks often aren't traded on U.S. exchanges, leaving major companies like Samsung and LVMH out of reach. To invest in them, one might need a foreign trading account or use market makers who sometimes mark up prices by up to 15%, potentially resulting in a 30% loss just on buy and sell transactions.
Even if your financial consultant suggests investing in foreign markets, consider whether this advice is proactive or reactive. Investments in foreign markets should focus on robust individual stocks rather than unreliable mutual funds. Often, outstanding companies are overlooked because firms don't provide the necessary analyst reports for advisers to review.
In 2006, when tensions escalated in the Middle East, there was a surge in funds flowing back to the U.S. dollar as investors sought safety. This illustrates a misunderstanding of economic conditions?"similar misconceptions exist about the U.S. market being the safest in the world, or the U.S. dollar being the most secure currency. But that’s a discussion for another time.
To truly find safe havens for your investments, it’s crucial to learn how to invest independently. Relying on financial journalists or external management might lead you astray.
Consider taking control of your financial future today.
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