The Financial Markets Overview

Did you see the markets today? Normally when we, average citizens, talk about “the markets” we mean the stock market of course. Not long ago I thought the stock market was where all the rich people hung out, and where most of the money went to create jobs, companies, and the economy.

But I was wrong…

The stock market IS big, no doubt, worth about $60 Trillion globally. But that’s a nothing sandwich when compared to the world financial markets. The Financial Markets as a whole is made up of many individual markets, (stocks, bonds, commodities, etc) Most investments, and financial resources in the world, are actually not in stocks.

The bond market, for example, is worth almost $100 Trillion. It’s so big that it influences the stock market, (like last week when dire European bonds triggered a stock market tumble that lasted an entire week.) Understand the bond market, and the stock market will make more sense. But if you really want to play with the big boys, look towards the forex market. $4 Trillion worth of money switch hands on a daily bases, much more than the daily volumes of stocks/bonds. And we haven’t even talked about the derivatives market which globally is valued at $615 Trillion.

We mostly talk about the stock market because it’s the easiest market (out of all the financial markets) to understand, plus anyone with pocket change can buy stocks. But all the smart money in the world, and all the institutional investors and hedge fund managers, worry about the larger, more influential markets. The stock market will never bankrupt or collapse a nation. But sovereign bonds, derivatives, and currency manipulation, can cripple the entire world’s economy if people aren’t careful.

Stocks are certainly one way to grow a portfolio, but it is far from the only place we can invest. A true investor will find a way to gain access to, and utilize all the investment opportunities offered by the financial markets, in its entirety. I will give an update once I have figured out how to do this 😀

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Simple Rich Living
Simple Rich Living
11/30/2011 3:38 pm

Thanks for your encouraging comments! I learned a lot in 2011 (considering base line was nada knowledge) but I hope to learn a lot more in 2012 (specifically dividend investing and learning how to understand/evaluate a stock/company).

Liquid Independence
11/30/2011 11:15 pm

Looks like we're both planning to learn a lot next year. Let's do our best.