Stocks are going to rise and fall. While stocks rising can help people gain more money from their investments, many people worry about what will happen if the stocks start to fall. It’s important to understand how stocks work and what might happen with the stocks. This way, the investor can make sure they’re making the right choices to keep their funds safe.
Why Do Stocks Go Up and Down so Quickly?
Stocks are based on the actual or perceived value of what the individual stock is for. In general, this means that stocks will rise and fall as the actual or perceived value of something rises and falls. Over time, stocks will generally rise in value, even if they do fall periodically or certain stocks fall quickly. Most of the time, declines in the stock market will be small and recover fast.
What Happens When Stocks Rise in Value Too Quickly?
If a stock rises in value rapidly, it’s called a bubble. After the bubble rises in value, it can burst, leading to a fast decline in value. This happened in recent years with the rise in technology and the rise in the value of real estate. In both cases, it was more the rise in perceived value that caused stocks to go up, not the actual value. With technology, it was the Dot-Com bubble, which burst in 2001. The real estate bubble burst in 2008 due to a significant amount of foreclosures in the period proceeding the burst.
What Happens When Stocks Drop in Value Quickly?
A stock market crash occurs when stocks drop significantly in value very quickly. In 2001 and 2008, both were caused by the bubble bursting. Typically, the value of the stock market drops, which then causes a panic. Those who panic about the rapid drop in value sell their stocks, often at a loss, causing the value of the stocks to lower even further. When the stocks drop low enough, usually considered to be more than 80% of their value, it can cause an economic depression.
When the stock market crashes, many people will sell fast to try to minimize their losses. Unfortunately, all this does is make this issue worse and make it more difficult to recover. The stock market will recover from a crash, it’s simply a matter of time. When people panic, however, they may pull their money from the stocks, losing much of their investments.
Can an Annuity Really Help Protect Your Money?
An annuity is designed to help people get through stock market dips and crashes without worrying about their savings. With an annuity, the person invests in stocks and bonds, not just stocks, so some of their money will be safe from the crash. An annuity means, at the worst, they’re going to break even instead of losing some or all of their original investment. Once the stock market starts recovering, they will start to gain money again.
Investments can help you make sure you have enough money long after you retire or your retirement funds run out. However, with the potential for the stock market to crash again, it’s vital you have some way to protect your funds. Look into an annuity today to learn more about how this can help protect your money against a stock market crash and why it might be the best option for you. With the right protection in place, you won’t have to worry about a stock market crash.