Often when you hear people talk about the market, they’re talking about the S&P 500. The S&P 500 represents the 500 largest publicly-traded companies in the United States. When you hear that the market or the S&P 500 is down 200 points or down a percentage, that doesn’t necessarily mean that your personal portfolio is down. We use the S&P because it is a very broad index. It doesn’t necessarily represent what each person owns. It represents a wide basket of 500 large companies, which likely represents what an individual owns and is weighted based on the size of the companies. The larger the company, the more impact it has on each price movement overall. While the market may be down 4 or 5%, many companies within the S&P 500 may not be down at all. It’s that the large companies were down, and so each individual is impacted in some way by each of their holdings.
We must use a market because we have to have some base indicator to see what, on average, has happened each day. Outside of that, each case can be discussed individually, person by person. We use an average to tell where we might stand relative to history. It’s not where we stand for you and your portfolios; it’s where the general population stands. It’s a good indication across the board where money may be moving. A stock market is just a weighing machine. Are there more sellers one day than buyers, and at what level have buyers or sellers come in to push prices lower or higher? That part is what’s important. What we’re watching for is if there are more buyers at these levels. If there are, then prices will naturally go up. It’s supply and demand. We use the S&P 500 because it’s such a broad indication of large companies in the United States that we feel are a good indicator of sentiment by investors. Investors vote every day with how they put their dollars to work. Those price levels where buyers come in tell where investors are voting with their dollars and saying that they think that area is where they’re willing to put money in and push prices higher. That, in turn, helps raise the market and the portfolio value of our customers and investors across the board.
Trey Booth, CFA®, AIF®
Senior Vice President
Email Trey Booth here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
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