FIN 343 UIU Supply and Demand Are Vital in Determining Market Price Responses – Assignment Help

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R1

Regarding knowledge of the general public on the topic of investing in stocks and bonds, I would say the author was correct. I feel as if, like lots of topics, the people who know about investing have a lot of knowledge on the topic. The people who are not interested do not know much about it because of the lack of experience. There are people in the middle, where I would categorize myself, that are interested in it and have some basic knowledge, but are still a ways from being an expert. I am hoping that this course will help me further my knowledge on stocks and bonds, as I have just limited experience with them. I would guess that lots of people’s experience with investing is through their retirement account. Whether it be a 401k, 403B, or IRA. The people who manage the allocations within their accounts hopefully have greater extent to their knowledge of investing than people who do not. This knowledge would simply come through experience handling the assets. It is important for people with access to this benefits to utilize them as they can significantly help grow wealth. Investing alone will help accomplish this, but most employers offer valuable contribution matches which is an additional benefit for growing money in a retirement account. Company matches, dividends, and growth can help accumulate a significant nest egg for individuals who utilize this great benefit. As people who are hoping to work in this field it is our job to get this message across to people who are not well versed in the area. Just like how people in the health care field tell us to wash our hands, we need to help people by getting them the information about investing, especially in their company plans that are offered. With investing comes risk though, so it is important to not push them to do anything they are uncomfortable with. Strictly provide information of what has happened in the past with investing and they should make their own evaluations and decisions.

Elkins, K. (2019, March 18). Only half of Americans have access to a 401(k)-here’s how to save for retirement if you don’t. Retrieved January 18, 2021, from com/2019/03/18/how-many-americans-have-access-to-a-401k-and-how-to-save-for-retirement-without-one.html”>https://www.cnbc.com/2019/03/18/how-many-americans-have-access-to-a-401k-and-how-to-save-for-retirement-without-one.html

R2

This article is very beneficial! I will be 100% honest and say that before beginning school at UIU, I was in the group of Americans who didn’t know the difference between stocks and bonds or how they performed. After a few previous financial courses (and a brush up from this week’s reading), I can say I no longer belong to that group.

Based on my past, I would absolutely believe the statistics provided in this article. I think the estimate of half of Americans not knowing about stocks and bonds is fairly accurate. This led me to an article about how many Americans actually invest in the stock market. “The latest available government data, via the Federal Reserve from 2016, shows a relatively small share of American families (14%) are directly invested in individual stocks but a majority (52%) have some market investment mostly from owning retirement accounts such as 401(k)s.” (Ghilarducci, 2020)

I think if you exclude 401(k)s, the percentage of American families who directly invest in individual stocks is eerily low. I think this percentage correlates with the knowledge Americans have about the stock market as well. In my opinion, some might have a very narrow knowledge of stocks and bonds and the market, but most know next to nothing.

Reading the subject article would be a great start for anyone who is curious about stocks and bonds. It provides a great overview and really helps to differentiate between the two. Looking at the performance of stocks versus bonds in our textbook and in the article really wasn’t something I knew much about either, so I think this information is helpful also.

Reference

Ghilarducci, T. (Aug 31, 2020) Most Americans Don’t Have a Real Stake in the Stock Market. Retrieved from https://www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market/?sh=6bba8b061154

R3

I thought the article was very informative, but not at all surprising. I am definitely in agreement with the author’s point of view. I have found a large majority of my peers have little to no knowledge when it comes to investments. They know that they put a certain percentage of their paycheck every couple weeks into a 401K, but I’m willing to bet a good portion of them have no idea what their money is actually invested in. Unless you take the initiative to learn yourself, there’s really no curriculum or assistance to teach people about investing. 15% of the working people in our country have no money set aside for retirement (Martin, Emmie). Then there’s an even larger percentage of people who have very little set aside.

I imagine it’s fairly well known that stocks have the potential to outperform bonds, although the risk is certainly greater as the article explains. Luckily investing doesn’t have to be too complicated. Typically a person can place their money into a target retirement fund and it does the reallocating for you over the years. Personally, being in my mid-20’s, I am not too interested in bonds. I have 30-40 years to go before retirement and therefor can handle more volatility than say someone within 10 years of retiring.

Martin, Emmie. (June 28, 2019). “Here’s how many Americans have nothing saved for retirement“. How many Americans have nothing saved for retirement (cnbc.com)

R4

If I had to choose the number 1 factor that I believe drives fluctuations in market prices, I would choose supply and demand. There are many factors that play a role in market prices but they all accumulate to supply and demand which ultimately decides where the price will go. Other factors are current economy, interest rate, management of company, stability, risk, dividends, and political environment. These factors determine the demand for a stock, which meets up with the demand and the equilibrium determining the price. I believe this to be the chief factors because in our economy supply and demand determines most of the prices of our products that are in an industry that is competitive.

If I would have to guess which of the three are most invested in, I would guess mutual funds because of their popularity in retirement accounts which is where the majority of investing occurs. Bonds are useful for later in life investing, where the investor is looking to minimize risk. They may have a significant amount of customers because of the aging population in our country as well.

Stocks are popular for people investing in a brokerage account and people day trading. This to me seems like an area for people who are more advanced in investing because of the increased risk involved. Stocks I would assume get most of their suitors from people who have maxed out their retirement contribution limits and have excess money laying around to invest. Since I would guess this is not as big of a percentage of Americans, I am guessing stocks is the one with the least traffic.

Trading Basics- Factors that Influence Share Prices. (2018, July 24). Retrieved January 18, 2021, from https://wall-street.com/trading-basics-factors-influence-share-prices/


R5

When it comes to the most important factor which drives short-term market prices, I really wasn’t too sure. Luckily, I was able to find an article which related to this question. In the article, they explain that supply and demand each play a basic role. Because markets are driven to equilibrium, sellers will bid up prices to slow demand if there is too much of it. Conversely, if there is not enough demand, sellers will bid down the price of stocks.

However, supply and demand aren’t the only factors. The article mentioned other indicators such as, “wars or other conflicts, concerns over inflation/deflation, government fiscal and monetary policy, technological changes, natural disasters, and corporate or government performance data.” (Hall, 2021)

One of the last things the article mentions is interest rate fluctuations affecting the stock market. I think this is the biggest factor in stock market changes. When interest rates are high, alternative investments (i.e. T-Bills) are more attractive than stocks. But, when interest rates are low, there is more money put into the economy.

Regarding the categories of stocks, bonds, and mutual funds – I think the number of investors in each category varies. Things like experience with investing, age, and level of risk aversion play a key role in who invests in what. While you are young, you can afford to take more risky investments, but once you are nearing retirement, you want less risk. The riskier the investment, the greater gain or loss you will have. On the other hand, with less risky investments, the less you stand to loss or gain.

Reference

Hall, M. (Jan 14, 2021) Factors that Cause the Market to Go Up and Down. Retrieved from https://www.investopedia.com/ask/answers/100314/what-are-key-factors-cause-market-go-and-down.asp

R6

There are numerous factors that may impact short term stock market prices. News of volatile global relations, elections, and more can all have an affect on stock prices. From what I’ve read, the biggest factor driving short term fluctuation is supply and demand. “The stock market functions as an auction, when there are more buyers than there are sellers, the price has to adapt” (Kennon, Joshua). The stock market is interesting to me in that it rarely sits idle. I can look at the Dow Jones Index every 30 minutes, and it will change every time. Individual stocks behave the same way as the supply and demand for that stock changes throughout the day.

I think most typical investors use mutual funds. I certainly think they are the way to go. It’s a very efficient way to diversify your portfolio, and takes very little work. Picking individual stocks can be more risky, and furthermore, it wouldn’t be very wise to have a majority of your investments in one or two stocks ( aka don’t put all your eggs in one basket). Bonds can also be invested through index funds, which can be beneficial in the same way it is with stocks.

Kennon, Joshua. (January 16, 2021). “Why Do Stock Prices Fluctuate? com/why-do-stock-prices-fluctuate-356347“>https://www.thebalance.com/why-do-stock-prices-fluctuate-356347.

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