http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments How the Reverse Wealth Effect Will Change Your Investing and Your Investments The US stock market is entering a correction mode. There is a lot of speculation about whether this is a short-term buying opportunity or a longer term meltdown that will wipe out years of gains. Ideally, investors should use fundamental analysis of intrinsic stock value and technical analysis trading signals as guides, to buying and selling stocks, bonds, real estate and other investment vehicles. But, human nature being what it is, we invest more aggressively when the market goes up and pull back faster when the market goes down. A part of what is going on today is a reverse wealth effect. Here are some thoughts about this phenomenon and how the reverse wealth effect will change your investing and your investments. The (Reverse) Wealth Effect Investopedia defines and explains the wealth effect. The wealth effect is a theory suggesting that when the value of equity portfolios are on the rise because of accelerating stock prices, individuals feel more comfortable and confident about their wealth, which will cause them to spend more. In 1968, for instance, economists were mystified when a 10 percent tax hike failed to put the brakes on consumer spending. Later, the sustained spending was credited to the wealth effect. Even though disposable income declined because of the additional tax burden, wealth continued to grow because the stock market persistently climbed higher. The wealth effect was especially pronounced in the years leading up to the financial crisis and Great Recession. Low interest rates encouraged people to buy more expensive homes than they could otherwise afford because mortgage payments were so low. Many purchased second and third homes, using equity taken out of their primary residence, because they were now “so well off.” This wealth effect also drove up stock prices past when fundamentals and technical indicators would support.

1. HOW THE REVERSE
WEALTH EFFECT WILL
CHANGE YOUR INVESTING
AND YOUR INVESTMENTS
By www.ProfitableInvestingTips.com

2. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
The US stock market is entering a
correction mode.

3. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
There is a lot of speculation about
whether this is a short-term buying
opportunity or a longer term meltdown
that will wipe out years of gains.

4. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Ideally, investors should use
fundamental analysis of intrinsic stock
value and technical analysis trading
signals as guides, to buying and
selling stocks, bonds, real estate and
other investment vehicles.

5. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
But, human nature being what it is, we
invest more aggressively when the
market goes up and pull back faster
when the market goes down.

6. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
A part of what is going on today is a
reverse wealth effect.

7. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Here are some thoughts about this
phenomenon and how the reverse
wealth effect will change your investing
and your investments.

8. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
The (Reverse) Wealth Effect

9. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Investopedia defines and explains
the wealth effect.

10. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
The wealth effect is a theory suggesting
that when the value of equity portfolios
are on the rise because of accelerating
stock prices, individuals feel more
comfortable and confident about their
wealth, which will cause them to spend
more.

11. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
In 1968, for instance, economists were
mystified when a 10 percent tax hike
failed to put the brakes on consumer
spending.

12. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Later, the sustained spending was
credited to the wealth effect.

13. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Even though disposable income
declined because of the additional tax
burden, wealth continued to grow
because the stock market persistently
climbed higher.

14. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
The wealth effect was especially
pronounced in the years leading up to
the financial crisis and Great
Recession.

15. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Low interest rates encouraged people
to buy more expensive homes than
they could otherwise afford because
mortgage payments were so low.

16. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Many purchased second and third
homes, using equity taken out of their
primary residence, because they were
now “so well off.”

17. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
This wealth effect also drove up stock
prices past when fundamentals and
technical indicators would support.

18. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
When this effect has gone on for a
while, smart investors start to sell and
take profits.

19. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Prices go down, and we have a reverse
wealth effect.

20. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
In a Forbes articles entitled, 4 Reasons
to Sell Your Stocks Today, the author
says the reverse wealth effect will drive
stock and real estate prices down, and
is already doing so.

21. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Economic statistics reveal a critical
connection between stocks, real estate
and human psychology.

22. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
When stock prices rise, those who own
them feel confident in bidding up the
price of real estate.

23. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
What’s more, when interest rates are
low, they don’t mind borrowing lots of
money to buy the houses.

24. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Conversely, when stocks fall, it does
not take long for people to suffer from a
reverse wealth effect.

25. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
This effect is multiplicative. When stock
prices go down, folks who feel less
wealthy tend to panic and sell in order
to preserve some of their wealth.

26. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
The falling markets in stocks and real
estate drive others to feel the reverse
wealth effect and the downward price
movements accelerate.

27. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
And, the reverse wealth effect reduced
people’s spending by about cents for
every dollar reduction in personal
wealth.

28. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
So, not only will stock and real estate
prices go down but spending will
reduce across the board which will slow
the economy, further adding to the
declines in property values and stock
prices.

29. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
How Bad Could This Get?

30. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
According to Investopedia, Morgan
Stanley says the worst is yet to come.

31. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
“Not only does the price action this year
suggest we are in the midst of a bear
market-more than 40% of the stocks in
the S&P 500 are down at least 20% –
but it also trades like a bear market,”
wrote the bank’s analysts.

32. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Even companies with good news to
report have seen their stocks sell off, a
good indicator that the market is in bear
territory.

33. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
Overall, says Morgan Stanley, “The
technical damage is irrefutable.”

34. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
It is our opinion that as investors feel
less and less wealthy, they will sell and
take the markets down for a protracted
bear market both in stocks and real
estate.

35. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
The losses will probably not wipe out all
of the gains of the last years, but may
still be substantial.

36. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
What Should You Do?

37. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
The answer to dealing with a market
correction has to do with your
investment horizon.

38. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
If you were looking for short term gains,
this is probably a good time to take
them.

39. http://profitableinvestingtips.com/bond-investing/how-the-reverse-wealth-effect-will-change-your-investing-and-your-investments
If you are in for the long term, consider
adjusting your portfolio, looking
for investments that do not lose
money, and wait for the bottom of the
market to pick up bargains.