I am probably one of the least handy guys on the planet. However, when my girlfriend found that the folks that repaired her fence a while back didn’t fill the uneven gap where the new fence met the existing back one, I had the crazy idea that I could fix it! Read more
The stock market is kind of like eBay. If there are a whole bunch of people bidding in the same auction, the final price will generally be higher than if there were just a few bidders. By the same token, if more money is invested in stocks, overall prices increases. It’s the law of supply and demand. (For more on this, see my post here)
If you buy into this theory, here is some goods news. According to this article Investors — individuals and institutions alike — are keeping the lowest percentage of their portfolios in stock in over half a century. It goes on to say, “In fact, that doom-and-gloom thinking itself may be part of the “wall of worry” keeping even more cash out of the market. By that reasoning, stocks could be headed a lot higher before this bull market ends.”
I like this state of things. We’ve got a market that’s performing well despite analysts’ pessimism. We continue to get relatively positive news on the employment and economy fronts. This combined with the higher returns on stocks has got to be convincing more folks to invest in stocks, thereby driving up prices even more. Obviously there will be a sell-off at some point, but that’s just something you live with. Long-term, you should be better off.
On a side note, this article says that people in their 50s and 60s are investing too much money in stocks. Obviously, you need to diversify and don’t put all of your eggs in one basket. :-)
Nice article on the advantages of investing in an index fund.
You might also want to read my recent post The Stock Markets: My Theory.