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Finances 101

Taking a more hands-on approach to managing your investments often means improving your understanding of three key areas in the financial world: the economy, the markets, and how they may affect your investments.

Economics 101

An economy is the collective grouping of all resources (people, money, debt, goods, services, etc.) that a country has in play at any given moment. Throughout the course of a year, an economy can be either strong or weak, depending on unemployment rates, consumer spending levels, and whether rising prices are a concern. When studying the economy and its affect on the market, keep in mind that Wall Street analysts are constantly tracking and interpreting a continuous stream of economic data.

Economic data, the statistical by-product of every economy, is more manageable when broken down into the four most popular categories:

Understanding Markets and Exchanges

When most people think of stock markets, images of Wall Street brokers crowded onto the floor of the New York Stock Exchange usually come to mind. Navigating the complex arena of the NYSE, NASDAQ, and Amex is easier once you understand the basics of what markets are and how they work.

There are two major categories of stock markets: the more traditional “exchanges” and the newer “electronic markets”.

How the Economy and the Markets Affect Your Investments

If you aren’t overwhelmed by the alphabet soup of CPI, GDP, NYSE, NASDAQ, and ECN, then take a deep breath and get ready for the easy part: understanding how the economy and the market work together.

Over time, a strong U.S. economy helps create higher salaries for workers, which in turn leads to an increase in sales and profits for businesses, which drives up stock prices, which then drives up the value of investment portfolios.

Conversely, when prices rise too high (inflation), consumer spending slows, profit margins begin to slide, stock prices fall, companies initiate layoffs in order to shore up profits, and the economy slows.

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Last Updated: 8/1/2017