4 minute read
And why wouldn’t you? Especially when the world is at your fingertips with Hatch. Let’s take a look at what makes up the US share markets, the history and performance over the last 30 years, and the risks involved to see if it really is as great as (some of) the world thinks it is.
A brief history of the US share markets
The US share markets are the biggest share markets in the world. Currently valued at over 30 trillion USD, this is particularly astonishing when you consider the fact that the NZX is worth just over 140 billion NZD*. Known as the world’s financial capital, the US markets are highly regulated and sophisticated. The two biggest ones in the US are the New York Stock Exchange (NYSE) and the NASDAQ. You can access over 2,700 companies and over 450 ETFs listed on both exchanges through Hatch.
*September 2, 2018
Established in 1792, the NYSE is the largest and best known market, but it’s not the oldest one in America. That title goes to the Philadelphia Exchange. While it may not be the oldest, the NYSE is the most prestigious with more than 2,800 listed companies, like Walmart, Disney, Ford, Nike, and VISA. Despite these big name companies, the NYSE is one of the few remaining trading floors that uses real humans. Electronic trading exchanges are commonplace but the NYSE has retained a hybrid model: one that combines both electronic and floor-based trading to match buyers and sellers.
NYSE fun fact
This may come as no surprise, but for much of the NYSE’s history, women were a rare sight on the trading floor. This changed in the 1940’s, for a couple of years when many of the clerks and runners were drafted in World War II. Close to 50 women, known as “the Stock Market Girls,” made a name for themselves on the floor. Of course, when the war was over, women were again a rarity on the trading floor, but at least one woman returned to the NYSE in 1967. Muriel Siebert famously became the first woman to buy a seat at the NYSE.
The NASDAQ was founded in 1971 and is the second largest share market in the US and the world. More than 3,300 companies are listed on the exchange where 2 billion shares are traded daily. The NASDAQ is an electronic trading exchange (it was the first!) rather than a physical stock exchange like the NYSE. Commonly viewed as the “Technology” index, the Nasdaq-100 is home to some of the best-known US tech giants like Microsoft, Apple, and Google.
NASDAQ fun facts
The NASDAQ is an acronym for ‘National Association of Securities Dealers Automated Quotations’. Quite the mouthful, hence the popular acronym. The NASDAQ is a huge, sophisticated exchange that caters only to technology stocks of the highest caliber. And it’s earned the right, The NASDAQ was the first to introduce electronic trading, the first to support Silicon Valley innovators, the first to offer dual listings and credits itself with inventing the modern IPO.
History repeats itself
Here’s not such a fun fact: the markets are naturally volatile. This means that negative share market returns occur every four years on average, That said, if you do your research you’ll see that the booming years have outweighed the bad ones. Since its inception in 1928, the average annual rate of return on investments in the S&P 500 Index (the market-capitalisation-weighted index of the 500 largest U.S. publicly traded companies by market value) was approximately 10%. The S&P 500 is considered to be a great indicator of how the US share market is doing and a bellwether for the US economy. Check out these S&P 500 Index calendar year returns:
Over the last decade, there’s been an average return of 11.88%. That might not sound like much, but it takes into account the huge loss in 2008. While no one can predict what’s going to happen, crashes with more than a 30% drop like 2008, don't happen often (thankfully).
Peaks and valleys
When the share market goes down over 10% from its previous high, we call it a market correction. The first thing you should know is that stock market corrections happen fairly often. The US economy is constantly in flux, and so are its share markets. Bad years are to be expected.
There are risks, yes, but as long as you have realistic expectations, investing in shares can still be an option for you to grow your wealth. Investors with a long term view tend to have great returns, which is why many believe in a buy and hold mentality when it comes to investing. If the idea of holding tight during a bear market makes you nervous, investing in the US share markets might not be for you.
If you’re seriously thinking about investing through Hatch, you should expect some down years. Know that they’re inevitably going to occur and have an investing plan in place so you know what to do. As we all know, history repeats itself, so looking at past market trends can give you a good idea of how much volatility to expect when investing.
This is all to say that there are real risks when investing your money on your own. The return on your investments can change at any time. You can’t control that. In fact, it’s part of what makes investing so exciting.
With the right long-term goals, you’ll be able to ride out the expected lows and take advantage of the highs in the largest share markets in the world. And we hope you’ll do it through Hatch.
Ready to start investing? Open your Hatch account today.