Future Stock Market Dangers And Risks

The stock market can be a volatile place, both in the short run and in the long run.

In this article, we will look at some of the factors that could affect the investment decisions you make and the stock market as a whole, both now and in the future.

Debt & Your Financial Security

Debt is an increasingly growing problem for many western countries like the United States, where debt levels have reached record highs for just about every category. This debt must eventually be paid off or wiped out through bankruptcy.

Whatever happens, when it finally does happen, it will have a negative effect on the economy which will subsequently affect the value of your stocks, the stock market as a whole and the rest of your investment portfolio.

The best way you can prepare for such an event is to ensure that you work to reduce the amount of debt you currently owe, and if possible, get rid of your debt completely.

You should also be applying a similar principle to the stocks you choose and keep.

Avoid stocks which have increasing amounts of debt, or large amount of debt, as these may be particularly at risk in the future.

Real Estate Concerns

An expanding money supply, excessive credit, debt growth and a lowering of lending standards have all contributed to the recent decline in the real estate market.

As a result, millions of homeowners, investors and speculators have all been affected and no one is exactly sure how much further we have to go before things start to turn around.

In order to survive through such times, make sure that you have your mortgage under control and eliminate your debt or reduce it to manageable levels.

Inflation & The Stock Market

Historically, rising interest rates and inflation have been bad news for the stock market.

Although in recent decades we haven’t had a serious bout of inflation like we did during the 1970s, the expanding money supply and increasing debt levels seem to suggest that we are headed for another inflationary period.

This is likely to be most severe in countries such as the United States and Great Britain, whose currencies continue to lose value in the global market.

For a stock market investor, having your money grow becomes more important than ever when you are dealing with rising inflation.

During inflationary times some stocks such as mortgage companies with fixed debt portfolios will suffer, while others such as precious metals mining companies will prosper.

As a stock market investor it is up to you to buy stock which will perform well as inflation slowly creeps upwards.

Pension Crisis & Future Savings

Pensions are an increasingly growing and serious problem throughout many countries of the world.

This is due to numerous factors such as people living longer, people not saving enough for their retirement and many governments/large companies having problems in their financial ability to meet retirement plan obligations.

As a result, many retirees may find that they do not get as much money as they were expecting, and if they don’t have much money saved up of their own, they could find themselves in a very difficult financial situation indeed.

The message is clear, pension plans are not the “sure thing” they used to be. You can’t rely on a pension to be there for you when you retire, and you certainly can’t rely on how much you are going to get.

In order to avoid suffering when you retire, ensure that you have enough money saved up so that you are able to support yourself first without having to rely on someone else who may or may not be there for you.

Recession/Depression & The Stock Market

If you look at the history of the stock market, you can see that declines in economic growth have always followed artificial economic booms.

In recent years, we have seen the exact same pattern repeat itself as the world entered a global recession.

Some believe we are out of the recession, and it is true that some countries such as Germany are now showing positive economic growth.

But whether the same can be said for countries such as the United States or Great Britain, is less clear.

However, the idea of a “jobless recovery” or “stimulus plan” to restart the economy has left many investors questioning the long term validity of these solutions.

During these tough economics times, the safest stocks are defensive (e.g. food & utility companies) because people will buy such products no matter how bad the economy is.

Overall, play it safe and protect your money with financially sound companies and avoid taking any unnecessary risks.

Trading In Commodities

The 1970s were a great time to invest in energy, precious metals and commodities. Today, we are seeing a similar patter occur.

Gold and silver have hit all time record highs, and stock investors who invested in these industries early are making massive gains.

As the dollar continues to become devalued, we can expect the price of precious metals to increase even further.

In addition to this, developing countries such as China and India need increasingly more commodities such as grains, base metals, energy and water for their expanding economies and populations.

When demand outstrips supply, the stocks of such companies will skyrocket.

Energy Stocks

The world’s appetite for energy is going to increase in the short run, especially as the economies of developing nations start to grow.

As a stock market investor this means there will be plenty of opportunities for money to be made in the energy market.

In the long run, new technologies will be developed which will eventually decrease our demand for energy and supply energy from sources that are not dependent on the burning of fossil fuels.

Therefore, in the long run, there will also be opportunities for investments to be made in these alternative energy companies.