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The History And Evolution Of Investing

1205 words - 5 pages

Common stock investments have helped to make the United States prosperous and powerful. Investing affects the U.S. economy in a myriad of ways. It impacts the life of companies, individual investors, and even those who do not invest. The stock market originally went through a process of brokers and telephones to sell shares. Now these transactions are all made digitally over the Internet.
Companies are not involved in trading shares in the market; however investing has a significant indirect impact on companies. Companies only receive the money when they make the initial public offering; the rest of the money made is personal for the investors who are actually doing the buying and selling. ...view middle of the document...

The overall effect of the stock market on companies is that it provides the funds for industrial expansion. This greatly affects the U.S. economy by creating millions of jobs for U.S. citizens. The stock market also allows for a growing capacity to meet the demands of productivity, and in the time of a war allows for industries that have become large enough to produce weapons and artillery for defense. In addition, investments in banks give them money to loan for houses and businesses.
At the same time, the downside affect of the stock market on companies is that it can completely destroy the life of a company that is depending on outside financing to fund its operations. A low stock price can increase borrowing expenses for a company because it will affect how a bank extends the company’s credit and at what interest rate. Having stocks also gives shareholders the power to fire the management when the company does poorly. If a stock price drops to low, lending companies will not deal with that company and clients will withdraw their money from lack of trust ultimately leading the company to go bankrupt. Lehman Bro’s is the most recent example of this, as the fourth-largest investment bank in the United States became a company that couldn’t pay its bills when the share price dropped too low.
Investing has many affects on a company, but how does the stock market affect individual investors and non-investors? The answer is in many ways and often indirectly. The stock market affects both investors and non-investors through its effect on pensions. If there is a long-term drop in share prices, the value of pensions becomes reduced and payouts will be lower. Likewise, when the stock market does well, the value of pension funds will increase. Additionally, individual investments in the stock market reflect the confidence of the economy. If the share prices depreciate, investors are less likely to spend. Investing then surprisingly affects most of the people who do not earn shares as well. The stock market is great for economists analyzing the state of the U.S. economy because investors typically only buy stocks when they feel confident that the economy is doing well. Stock prices primarily have a psychological impact for individual investors on consumerism in the economy. When stock prices rise in a bull market, more people begin to invest in the stock market and the economy grows along with industries.
The stock market has a huge effect on the economy. The stock...

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