Stock Market Information

When you’re first starting out as an investor, there’s a lot to take in. Certainly in terms of investment vehicles you’re not short of options. The invention of Exchange Traded Funds and Exchange Traded Notes means that you can get into almost any asset class with the push of a button. Want in on gold? You can. Want to buy commodities? UBS has you covered.

But the biggest part of the puzzle to remember is that you need to understand yourself and your own tolerance for risk. Investing in any part of the equities markets means that you’re subjecting yourself to volatility. There will be bad times, when your portfolio can drop 10-30% or more in a given period, as we’ve seen over the past year. If you’re a long-haul investor with steely nerves, you can grasp the fact that you should hold on for the ride and that historically speaking time is on your side.

Many people overestimate their tolerance for risk, which can get tricky. Many people believe that they are ready to accept volatility. They think they understand that stock markets go down and that it could be some time before they come up again. Unfortunately when the hammer falls and you’re staring down the painful red ink in your brokerage account, many investors balk and bail out. They can’t take the pain.

How much can you take? Are you prepared to wake up one day and find 30% of your account’s value gone? Are you ready for a broad investment horizon that focuses on performance over decades, not months? If so then you should pick up an investment book and get to work, if not your best bet will be to consult a financial advisor, who can help you earn gains while not exposing your portfolio to excess risk.

Even as the tension increases in congress for a deal to be reached, the financial sector continues to worsen. In it’s latest collapse, Washington Mutual faced bankruptcy before the FDIC seized it. It was later sold off to JPMorgan for $1.9 billion dollars.

Washington Mutual has been one of the largest banks in the country and was originally founded in 1889. It’s failure is unquestionably the largest ever in United States history. It had roughly $307 billion in assets at the time of it’s collapse, far exceeding the Illinois National Bank that failed with $40 billion in 1984, and the $32 billion that Indymac failed in July.

Thankfully the sale to JPMorgan means that WaMu won’t deplete the FDIC’s insurance fund, which was originally feared. Given the bank’s relatively terrible balance sheet,JPMorgan is expected to write fown just aobut $32 billion of the bank’s mortgage portfolio. That could change, depending on the verdict of the government bailout.

WaMu has been, and was right up until it went under, under severe liquidity pressure. It’s stock had been seriously crushed, plummeting 95 percent from it’s 52 week high. It also suffered a recent ratings downgrade from Standard & Poor’s that pushed it over the edge of collapsing.

If you’re following the stock markets, expect a serious rally today. It appears that both Republicans and Democrats have come across the isle to approve the $700 billion bailout of the financial sector. Whether this will ultimately prove to be helpful or hurtful to the economy long term remains to be seen, but it’s widely expected to pass once it hits the Bush administration:

The bipartisan consensus on the general direction of the legislation was reported just hours before President Bush was to host presidential contenders Barack Obama and John McCain and congressional leaders at the White House for discussions on how to clear obstacles to the unpopular rescue plan.

One has to wonder how the ballooning federal deficit will impact the value of the dollar in the coming years. This is especially true given the $400ish billion over budget that the government is already running. Questions have been raised as to the true cost to taxpayers, but it appears that immediate action needs to be taken to prevent a complete melt down similar to the great depression. Ramifications may remain down the line, but it appears we’ll have to wait and see just what they entail.