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How Stock Prices Are Influenced and How the Stock Market Could Possibly Influence Your Retirement Plan

In mid October, Wells Fargo released better than predicted earnings and record numbers. So you would expect their stock price to rise. But did it? No, it went down. It reminded me how a number of years ago Exxon Mobil announced that they earned more money in a single quarter than any company had in history. What happened to their stock price on that day? Like Wells Fargo, it went down.

It seems to make zero sense, does it. Companies announce record earnings, their stock price falls. Companies announce they are losing money, so they are laying off thousands in returrn their price goes up.

What the heck is happening?

What we should remember about share prices is simply this. Today’s value of a company has absolutely nothing to do with what that enterprise has been doing in the past. It has something to do with what everyone expects that company to do down the road.

In the case of Wells Fargo, investors saw that the past quarter as being really good. That was great, but they also saw that mortgage applications have dropped dramatically, which they expect will hurt Wells Fargo’s earnings in the future. Therefore, the stock price decreased.

Here’s the problem with all of this. Can you tell me with any certainty what will happen in the longer term? You can make guesses. You can judge possibilities. But the unanticipated has a practice of rearing its ugly head, doesn’t it. When the unexpected says hello, it can throw all of your guesses and probabilities out the window and make a new reality.

If you are honest and you pay attention, you will find that the unanticipated shows up far more often than you would like it to. As a result, guessing what will happen in the future becomes iffy at best. And that means that current market valuations are iffy.

That’s why markets are so volatile. New information comes into play every day. That new information is often filed beneath the category of unexpected. The result – markets start moving dramatically as they factor in the new information.

This is how stocks are priced, and together, how the market is valued. Clearly, it’s a bad environment for the portions of your portfolio that need to deliver income for you day in and day out. It’s acceptable for taking chances. It’s not acceptable for core income.

Keep that in mind as you prepare your entire retirement plan.

Author: Matt Golab, who is the Chief Advisor of Aaron Matthews Financial Resources

Matt is an authority on creating innovative tax and investment solutions to help his clients succeed in their retirement years. The strategies Matt Golab has established and passed on through successful financial planning with hundreds of clients over the years has launched him into the national spotlight. Matt Golab emphatically states his mission, “I want to change the way Americans view their retirement. They can succeed (stay retired) regardless of what happens in the market”. If you would like contact information for Matt Golab, please simply click here. Investment Advisory Services offered through Global Financial Private Capital, LLC, an SEC Registered Investment Advisor.

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