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Why should I care if share prices fall?

Why should I care if share prices fall?

  • 28 February 2020
Related Topics
  • Coronavirus outbreak
Image copyright Reuters
Image caption Traders are affected by stock market falls, but so are you

Big shifts in the stock market are often in the news, whether they are booms in the US or falls due to the coronavirus or the financial crisis.

As companies grow, they issue shares. The largest companies in the UK have shares which are bought and sold on the London Stock Exchange.

Their collective performance is often quoted amid a blizzard of numbers that may feel confusing and irrelevant. Rarely does anyone mention during a coffee with friends that the FTSE 100 has dropped well below 7,000 points.

But there are good reasons why this performance affects your life and finances.

'I don't invest' - actually, you probably do

Many people's initial reaction to "the markets" is that they are not directly affected, because they do not invest money.

Yet there are millions of people with a pension - either private or through work - who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

Pension savers mostly let experts choose where to invest this money to help it grow. Widespread falls in share prices are likely to be bad news for pension savers.

As much as £600bn is held in defined contribution pensions at the moment.

This is what has happened in the last year to the FTSE 100 - pronounced "Footsie" - which monitors the performance of the top 100 companies listed on the London Stock Exchange.