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For small business owners, the stock market really does matter
A thousand points up. A thousand points down. The stock market is never a predictable thing. A rumor. A pandemic. A strong earnings report. Any and all of these things can cause wild fluctuations, wiping out or adding billions in wealth in a single day.
Should we really be paying attention to this? Most experts will tell us not to get swayed by a volatile market's ups and downs. "You have to have a long-term outlook," they say. "You shouldn't get distracted by the market's gyrations."
They're right, of course. The data clearly show that stock market returns outpace most other investments over the long term. Even with recent declines, the market's still up more than 50 percent over just the past few years. Some say that a correction provides more buying opportunities. The ups and downs of the stock market are just...well...the market.
But regardless of this logic, small business owners are particularly vulnerable when the market declines. Why?
Because the stock market, as unpredictable, uncontrollable and unreliable as it is, is still a - if not the - bellwether of economic confidence in the U.S. economy. It's the leading, daily economic statistic that's watched closely by everyone. When the market falls, even for short periods, people become a little less confident and a little more uncertain in the future. While this doesn't have much of an immediate impact, a continued decline does.
Because let's face it, small business owners have a lot riding on the stock market. Any excess cash we've accumulated over the years is more times than not invested in some type of mutual fund. Our retirement accounts are mostly stock-focused.? This is because there are very few alternatives to squirrel away our hard-earned money. Should we earn .001 percent on a money market account or super-low yields on a bond fund? Do we speculate on property or by buying shares in another company? I don't think so. I'm too busy running my own business. I don't have time to be an expert in someone else's. Even investing in my own company has to be tempered because if I don't diversify at least some of my savings, what happens if things in my business take a dive?
Ask any small business owner and they'll likely admit that they don't understand why companies like Uber, Tesla and all those unicorns with small revenues and enormous losses are valued so high. Ask any of us if we trust all the financial experts - you know, the ones who never saw the last recession coming? And yet, we still believe - naively or not - that these same experts know more about the economy than we do. And when they're selling, that's not a good sign. Should we cut back on our investments? Hold off on hiring? Circle the wagons? The thought definitely crosses our minds on the days when the market dips a thousand points.
More importantly, this very same concern crosses the minds of our customers. Will the market declines cause them to hold back on their purchases and investments? Will my clients spend less on the products we sell because they're a little less certain about what's to come? Are they feeling poorer because their investment accounts took a hit? They most certainly are, and indirectly my business could suffer from any potential spending pullbacks they make as a result.
So the stock market does matter to small business owners like me. I know that there are plenty of other more rational metrics that we should be following. But we can't help but notice when the markets fall.
Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.