PSA for those needing the reminder: Anyone with any savings should be keeping it in a brokerage account (eg Fidelity, eTrade, Vanguard, etc). Savings accounts at banks don’t pay you anywhere near enough interest to keep up with inflation. But with a brokerage you can put that money into a managed fund, which is in turn investing it into the parts of the economy where all the value is going, returning that value to you at like 5%-20% per year. It doesn’t need to be a 401K account connected to your workplace, it can just be a standalone account with regular tax. Even after the gains tax it’s like an order more growth than a savings account and usually outpaces real inflation. Even if the fund’s holdings include things you don’t find 100% ethical, it’s likely what a bank is investing your savings account money in anyway - Just without sharing the profits with you.
Stocks are arbitrary units of corporate account and companies always want new investors, if there’s so much demand for their stock that there’s no supply they just issue more stock. But open-ended mutual funds - The type I’d recommend investing in - Aren’t priced by share because they aren’t traded on exchanges. They’re priced by a similar metric called Net Asset Value or NAV. Investopedia explains it better than I can.
It depends on the fund. Mutual funds have a prospectus that defines exactly how they’ll behave. Some funds leave room for management discretion while others are almost mechanical. They make their holdings public, so you know exactly what they’re composed of. I don’t think there’s much limit on what they could buy, it’s defined more by the strategy of the fund.
Does that answer your question? I wasn’t really even sure what you were asking just doing my best to be informative.
It’s helpful but I am worried about something else. Imagine an Island with 100 inhabitants and $10 each. If there are only 2 companies for $200, what do the other 60 people buy to avoid inflation?
As they’re a completely disenfranchised social majority on an island with a population tiny enough for everyone to know everyone else and a robust enough technological base to justify something like a stock market, they buy nothing and successfully institute anarcho-communism! :D
But to take the scenario seriously: Assuming that there was still demand for the shares among the population, the people seeking shares would offer more money for them than they were originally worth, until some of the people who own them considered it worthwhile to sell. If this alone doesn’t sate demand then the two stock-issuing companies would almost certainly issue more stock, ideally enough for them to raise more funding but not so much that the increased supply overwhelms demand and drops the price per share. They could also split the stock: Every share in circulation instantly becomes two shares, worth half of an older share at time of split. Depends on which market outcomes the companies are seeking. But basically the response to your scenario is that stock issuance is completely arbitrary (Within regulatory limits, whatever they may be) and up to the issuing company, and a market with demand is a market that will be offered shares because to a company it’s just fundraising waiting for the taking. The only thing they can’t do is disappear stock in circulation, if they wanted to remove stock for some reason they’d have to buy it back from holders on the market.
PSA for those needing the reminder: Anyone with any savings should be keeping it in a brokerage account (eg Fidelity, eTrade, Vanguard, etc). Savings accounts at banks don’t pay you anywhere near enough interest to keep up with inflation. But with a brokerage you can put that money into a managed fund, which is in turn investing it into the parts of the economy where all the value is going, returning that value to you at like 5%-20% per year. It doesn’t need to be a 401K account connected to your workplace, it can just be a standalone account with regular tax. Even after the gains tax it’s like an order more growth than a savings account and usually outpaces real inflation. Even if the fund’s holdings include things you don’t find 100% ethical, it’s likely what a bank is investing your savings account money in anyway - Just without sharing the profits with you.
Are there enough shares for everybody to buy? If not and people only own index funds then where do those funds put the money?
Stocks are arbitrary units of corporate account and companies always want new investors, if there’s so much demand for their stock that there’s no supply they just issue more stock. But open-ended mutual funds - The type I’d recommend investing in - Aren’t priced by share because they aren’t traded on exchanges. They’re priced by a similar metric called Net Asset Value or NAV. Investopedia explains it better than I can.
They also buy back shares and reduce their shareholders.
The ROI will drop if companies have too much money.
That just shifts my question. What can those funds buy?
It depends on the fund. Mutual funds have a prospectus that defines exactly how they’ll behave. Some funds leave room for management discretion while others are almost mechanical. They make their holdings public, so you know exactly what they’re composed of. I don’t think there’s much limit on what they could buy, it’s defined more by the strategy of the fund.
Does that answer your question? I wasn’t really even sure what you were asking just doing my best to be informative.
It’s helpful but I am worried about something else. Imagine an Island with 100 inhabitants and $10 each. If there are only 2 companies for $200, what do the other 60 people buy to avoid inflation?
As they’re a completely disenfranchised social majority on an island with a population tiny enough for everyone to know everyone else and a robust enough technological base to justify something like a stock market, they buy nothing and successfully institute anarcho-communism! :D
But to take the scenario seriously: Assuming that there was still demand for the shares among the population, the people seeking shares would offer more money for them than they were originally worth, until some of the people who own them considered it worthwhile to sell. If this alone doesn’t sate demand then the two stock-issuing companies would almost certainly issue more stock, ideally enough for them to raise more funding but not so much that the increased supply overwhelms demand and drops the price per share. They could also split the stock: Every share in circulation instantly becomes two shares, worth half of an older share at time of split. Depends on which market outcomes the companies are seeking. But basically the response to your scenario is that stock issuance is completely arbitrary (Within regulatory limits, whatever they may be) and up to the issuing company, and a market with demand is a market that will be offered shares because to a company it’s just fundraising waiting for the taking. The only thing they can’t do is disappear stock in circulation, if they wanted to remove stock for some reason they’d have to buy it back from holders on the market.
The problem is that shares cannot rise arbitrarily in price because the value depends on the profits.
On the other hand, if there are no new business opportunities, handing out shares decreases profits per share and thus also their value.
I want to show that not everybody can invest their money in funds or the ROI would crumble.
What a fun game. The only way to earn interest is to fund capitalistic ventures that got us here in the first place.