The USA (and Australian) sharemarkets have taken a bit of a tumble over the last few weeks.
USA Bond status downgrade
Two weeks ago the bond status of the country was downgraded from AAA (the top rating) to AA+. Small difference, but what the credit agency is saying is that due to the USA huge debt (and the way they keep spending) it means a slightly less chance they will be able to repay their existing debts.
Although this is only the opinion of a credit agency, because of this news –
it makes the whole United States of America a bit more risky.
Obama said that America will always be an AAA country despite what they are called. Which may be correct, but America has a lot of debt. And it may be easy to be optimistic now when real problems in the USA might be a while away (like In 5, 10 or 20 years).
PANIC! Sharemarket down
So the USA sharemarket went down 6.5% (the 6th largest drop since it opened). Because shares are risky (and could be affected in the future from this downgrade) – people put their money into other things.
People put their money into Bonds (which is a bit ironic – given they are more risky than before!).
Also people put their money into Gold (and other commodities) which shot up in price.
The sharemarket moves on panic (or fear) – and when people start selling because they are afraid they are going to lose money, more people follow.
In the next few days the market rebounded 5% (although it is still down overall from before the US bond downgrade). People realised that they had panicked. While these issues of debts are a problem – people might have sold off too much.
What this means for you
Well since the USA market went down – so did the Australian market (although less than the USA market).
So your super fund (or direct shares if you have them) might have taken a hit. However, for your super, as your employer pays money in every quarter – you could be buying at cheaper prices (called dollar cost averaging means you can actually get more bang for your buck if the sharemarket goes down then up).
In the long run – this might mean higher costs of borrowing (say if you are going to buy a property).
What will the sharemarket do?
Of course the next question is what the sharemarket (in Australia and USA) will do. And the answer is anybodies guess. While everyone has an opinion, nobody really knows.
But I suppose that hasn’t changed – there will always be ups and downs, some which happen because of a reason (such as this debt downgrade) and some that don’t.