Even though the Dow Jones Industrial Average, S&P 500, and Nasdaq are reported daily, it can still be difficult for some people to understand.
Mikey Manghum is the new Vice President of Regent Private Wealth and joined News On 6 to explain some of the basics.
Mangum said equity is defined as a “small ownership interest in a company” that investors buy in the hope that the company will grow and the value of their investment will increase. He contrasts this with investing in market indexes such as the Dow Jones or S&P 500, which are “aggregations” or “complexes” of many different companies.
Mangum explains: “If you only have one panel window and you throw a rock through that window, and it’s an individual stock, everything will be destroyed and you’ll have to replace it. So there’s some risk involved in investing. So people wanted to spread that risk and built windows with maybe 16 or 20 or 500 different little panes in them.”
Stock market impact
Mangum acknowledges that many people wonder how the ups and downs of the overall stock market affect personal investments and the economy. He points out that its effectiveness depends on how diversified an individual’s portfolio is.
“If you have all your money in the S&P 500 and you hear that the market is going down. If you log into that account, you’ll likely see that reflection there. But maybe you have real estate and you hear that the market is going down. If you own stocks, you’re in another business, you’ve invested a little bit of money in the market, maybe you have bonds, you have something uncorrelated, you have precious metals, things of that nature. If you have one, you’re not only going to have a big impact on what you invest in, but also on your entire portfolio, especially on stock market movements.”
Investing in individual stocks
Mangum cautions that investing in individual stocks is riskier than investing in diversified funds or indexes. He advises that investing in individual stocks is a “more sophisticated exercise” and requires a deep understanding of the company and its industry. “The risk isn’t necessarily in the investment, it’s in the investor,” he explains.
retirement investment
Finally, Mangum discusses how retirees should adjust their investment strategies as they transition from accumulating to withdrawing wealth. He suggests a more conservative approach, increasing allocations to bonds and cash equivalents to reduce volatility.
