inflation and the stock market
What are the risks inherent to the stock market? Let's consider the most common inflation and the stock market, which arise when investing in stocks. The first risk is the default. Most often this is the default of the company. But there is the risk of a possible fall in the value of shares. For example, look at the picture, showing what happened on the Russian market in 2000-2009. You can see a chart, which shows the development of the Index RTS - a kind of thermometer of the Russian stock market, which shows us temperature (i.e. the price of the shares) on the average.
Buying shares in April 2005, we could sell them in June 2008, having received a huge profit. And now look, as reflected in the dynamics of the RTS global financial crisis of 2008. At the time of writing this Chapter (spring 2010) there is a tendency resumption of the dew of the RTS index, but to give guarantees of exact direction of its motion in the future no one can. Now you have learned, what is the risk in the stock market.
From the picture may become clear that, by investing money in the long term, the risks associated with inflation and the stock market, are significantly reduced, but not leveled out at all. The aim of the investor is to increase the equity capital together with the growth of the country or a particular industry in which the investment is made. The Russian economy a great potential for growth, therefore, investments in the shares of developing Russian companies must justify itself in the future.
Returning to the risks associated with an investment in the shares, let's ask ourselves the question: is the inflation risk for the investor. You may be surprised by the answer, but on the yield of inflation virtually no effect! The thing is that, unlike Bank deposits and bonds, inflation is incorporated in the value of the shares. «How is it?» - ask you a question. Let's take a look. In the process of inflation is increasing the cost of the goods. Enterprise producing the goods, receives greater profit. Because it makes more money, the value of its shares begins to grow. Therefore, if you are going to invest in shares - forget about inflation. No matter how changing the prices of the goods, is irrelevant inflation, on it it is possible to forget, taking up the process of investment.
All the people who at least a little bit interested in investing, the often heard the phrase «blue chips». What is the chips, why they are blue, not green - these are serious questions, which are not so easy to answer. We will try to figure it out in the next Chapter.
