As someone who grew up in a culture and family who was fearful of stocks and was told you cannot create something from nothing, I have always been skeptical of stock market and did not invest like I should have. Graduating around 2008 crisis also colored my perception. Now I have a bunch of savings that are just sitting in cash but I am afraid to buy stocks because the market seems so risky. And yet every day the market just keeps going up and people who were not worried and just bought stocks keep getting richer and richer. Is the stock market an infinite money glitch ? Where does this new money come from ?
Where does all this money come from ?
byu/Enough-Mountain1852 ininvesting
Posted by Enough-Mountain1852
15 Comments
The real risk is losing the value of your cash to inflation while it sits in savings.
As long as the population increases, companies keep being productive, and inflation exists, the stock market will go up. If demand increases, the stock market increases.
The government can just print as much money as they want. They can’t print companies like Nvidia or AMD.
A lot of it comes from the dollar losing value.
When the value of the dollar goes down, it takes more dollars to buy something.
Stocks represent portions of companies. Those companies generate profit in lots of ways.
Additionally, they can use profits to buy back shares of their stock, which, if demand for the stock remains constant, also drives the stock price up.
The stock market was once livestock. Buy a calf, sell a cow.
Instead of losing out in a crash, you lost out on the whole game of building wealth.
You were given horrible advice.
I would recommend you checkout the reading list in this subs wiki, something from general introduction and start there. You’ll learn about investing in a much more constructive way that just reading through Reddit comments.
A good start is understanding the difference between cash and wealth.
Also check out the reading list in the sub wiki.
Good luck retiring, ever
Every company has a finite amount of stock shares on the open market. When someone is buying, that means that someone else is selling.
The seller might be harvesting profits, or they might be selling for a loss.
As a buyer, you are helping to set the new, higher price of the stock. The more demand there is for a stock, the higher the price goes. Subsequently, the less demand for a stock, the lower it drops.
Higher demand creates value, lower demand means people are losing money to the market.
Stocks aren’t exactly creating something from nothing. Every stock represents a real company that is doing business, and for some of those companies, their business is doing great. So this drives the return in the long term. In the short term, stock prices are usually driven by investor sentiment around the company, the more popular ones have more people buying in (asset managers, 401ks, Roth IRAs, pensions, hedge funds, individual investors in their brokerage) so from supply and demand, the buying pressure pushes the price upwards. If it’s not a popular stock, then usually selling pressure pushes the price down. If we’re were really talking about creating something from nothing, then maybe crypto fits the bill a little better.
> was told you cannot create something from nothing
oh boy, wait until you learn what money is…
The short answer: Companies grow their revenues and earnings over time, which makes their shares more valuable.
I’m sorry to hear you’ve been sitting in cash your whole career. That’s…unbelievably unfortunate. Your family did you a massive disservice.
if you ask retail, it comes from fear of knowing that your income and savings are wortless in the long run.
Equities value is measured in dollar.
When the measuring stick keeps shrinking from losing value, your measurement reads higher.
So no, it’s not just “money going in”, it’s also things getting repriced.
if a stock doubles in value from say $100 to $200, then the total stock value doubles from say 1T to two 2T. This does not mean 1T was created, it is the perceived value if all that stock could be sold for $200 (that stock can crash overnight back to $0).
If this is not what you mean, study fractional banking.