In 2024, the stock market hit record highs and numbers that make the economy look certain to remain unshakable, but what does the soaring stock market mean for ordinary people?
If you’re struggling with high inflation, stagnant wages and difficulty getting ahead in the corporate world, a strong stock market may not mean much to your meager financial situation.
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How can you take advantage of the stock market and put your finances in an advantageous position? Economist Michael Collins, adjunct professor of economics at Endicott College and CEO of wealth management firm WinCap Financial, offers a comprehensive understanding of the impact of the stock market and tips to put your finances in an advantageous position.
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Stock market rallies affect different segments differently
The most important thing to understand is that while a healthy stock market may be a sign of an overall strong economy, it’s not necessarily the average working-class American who gets rich when the stock market is rising.
A rising stock market doesn’t affect everyone the same, Collins explained. For people under 30 and 40, who face high inflation and high interest rates, it all seems overwhelming, Collins said. That makes them less likely to benefit from a rising stock market.
“On the other hand, grandparents who are retired and living off fixed savings will be happy to see stock prices rise, which will mainly benefit baby boomers and people over 50 who already own homes and have seen the rise in prices, and who already own stock portfolios and have seen the rise in prices,” Collins said.
Others who will benefit could be those who invested in stocks like Nvidia (NVDA) and HubSpot (HUBS), which have been hugely successful and have generated millions of dollars in profits.
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Will it trickle down?
Some of the stock market’s gains have filtered down in less visible ways. For example, Collins said starting salaries for new graduates have risen. When he got his first job after graduating from college in 2005, he recalled, he was making $30,000 a year. But now, if he wanted to hire a starting salary at his company, he’d have to pay $80,000 to be competitive.
“But that employee is facing the same problem as any other employee: He’s living at home and trying to save up money to buy a home in the next three or so years,” Collins said.
Inflation wipes out gains for average Americans
If you don’t have a large stock portfolio and aren’t living off stock dividends like the wealthy, inflation will hit your finances even harder, no matter what the Nasdaq is doing that day.
“You look at some studies, the lowest end of the workforce gets the biggest wage increases, but if you get a 25 percent pay increase and the cost of living goes up 20 percent, you’re still not going to be happy…” Collins explained.
The problem isn’t easy to solve. “The quick fix to high inflation is economic pain. Nobody wants to think, ‘Here’s the perfect way to eliminate inflation. I’ll just lose my job,'” Collins says. “Life is made up of trade-offs. That’s the hard thing about economics.”
Make sure you create a budget
Collins says the way forward now requires a more strategic approach, and any attempt to stop overspending must start with creating a budget.
“If you look at people in terms of spending, those who have the luxury of eating out have a much higher spending. Eating out to restaurants two or three days a week or using expensive Uber Eats is the norm. And it’s a real luxury. But people have gotten used to it,” he said.
And this is just one way people spend money thoughtlessly without a budget.
Increase your income
Another way to become successful is to start a side hustle. “It’s never been easier to make money in 1000 years,” Collins says. “If you’re struggling financially, you can start working as an Uber driver tomorrow and make money. You don’t have to go to an interview, you don’t have to do anything. You get in your car, you drive, you’re making money right away.”
In the past, “the time between wanting to make money and actually making money was much longer. You might have to wait a month to make money. Now, if you need to make money, you can make it right away,” he said.
Opening a Roth IRA
He recommended that young people start saving for retirement with a Roth IRA investment account. “It’s a great vehicle. [for saving].”
A healthy stock market means low unemployment and the stocks you’ve invested in are probably trending up, but that’s no excuse for not managing your finances well. If you’re diligent, you’ll be prepared when the stock market crashes again, which historically is likely to happen sooner or later.
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