Personal Finance Guide

Understanding Stock Markets

Let us first take common stocks. Consider both the earnings and the dividends as they relate to the price. Check the historical trading pattern of the shares concerned. This will give you a clue as to whether the stock has been a volatile performer and whether it has fluctuated with cyclical trends in the economy and the stock market. One of the most important economic indicators is the bank prime rate — the rate of interest at which commercial banks lend money to their best customers. This interest rate is a good indicator of the general level of interest rates, since most other rates rise and fall with it. You should seek to determine whether interest rates are likely to rise or fall in the near future. The financial press frequently discusses these matters. Often in the past, stock and bond prices have generally fallen when interest rates rose. As a result, if you expect a rise in interest rates, you should consider keeping your funds liquid. On the other hand, if you expect that interest rates will fall, you should consider investing in stocks and bonds as interest rates start to drop. More...