How Consumer Spending And Economic Growth Is Linked

How Consumer Spending And Economic Growth Is Linked

How Consumer Spending And Economic Growth Is Linked Anyone who’s paid attention to Wall Street for more than a few hours knows that the media loves to speculate on what the latest economic reports mean for the markets. Everything from job numbers to housing starts to consumer spending is discussed and analyzed until opinions (often contradictory) are given as to what it means for the future. While some indicators are considered more meaningful than others, one finds itself among the most looked at figures and seems to spark the most contention: consumer spending. It’s not without good reason. Even freshman year economic majors know how important spending is to an economy, but citing figures alone and drawing conclusions is an oversimplification of a dynamic process that fuels economic growth. A Brief History of Economic Growth and GDP Before we take a look at how consumer spending and the economy are linked, let’s review how growth occurs in the economy. The textbook definition of growth is an increase in the capacity of the economy to produce goods and services. Several factors are responsible for influencing economic growth: Investment – An increase in investment means an increase in productivity. Investing requires a decrease in spending so that more money is available for investments. Innovation – Technology can radically alter the economic landscape. When more output is able to be generated from the same amount of input, productivity increases. Increased Specialization – The division of labor means that more efficiency occurs when workers specialize. This increase in efficiency means greater output will be generated. Increased Input – The more workers or machines...
Portfolio Hedging: Myths and Misconceptions

Portfolio Hedging: Myths and Misconceptions

In the world of finance, hedging is often thought of as a bad word. Banking failures and hedge fund bankruptcies have cast it in a bad light and left a bad taste in the mouths of investors who have experienced such disasters first-hand. Despite the negative press, hedging is actually a risk-reduction strategy used to create a safety net for investments.Most people might not be aware of it, but hedging is a concept we use in our everyday lives. If you own an automobile, you probably have it insured to protect yourself from unforeseen losses. The same thing goes for any type of insurance whether it’s for your home or even for yourself with a life policy, you’re hedging against loss.Hedging in the stock market is simply taking out insurance on your positions. In other words, if you’re bullish on a stock that you own, you may want to sell a covered call just in case of a pull-back. As with all hedging, you tend to reduce your total upside potential unlike just going “all-in,” but you also limit your downside risk making your portfolio more stable.A Closer Look At Professional Money Management: Hedge FundsHedge funds are touted as the ultimate portfolio designed to profit in any type of market condition while also reducing overall risk. They invest in multiple asset classes such as equities, bonds, options, currencies and more, making them more flexible when it comes to repositioning money and weathering unexpected market events. Because they are managed more intensely than other products and engage in sophisticated strategies, only accredited investors – generally defined as an individual with...